Welfare: Maybe The States Can Figure Out What Works

President Bill Clinton promised to end welfare "as we know it." As we know it, welfare is an open-ended entitlement that has been successful in spending money but unsuccessful in achieving its goals.

Policymakers perceive that part of the problem lies in the way welfare is financed: with federal matching grants. It only costs states 50 cents to expand welfare spending by $1. The welfare reform bill moving through Congress would bring this to an end by substituting federal block grants, capped at existing spending levels, for open-ended matching grants. This reform would double the marginal cost to state taxpayers of expanding welfare. Thus, states would have more incentive to control their welfare programs and to get better results for their money.

However, the factors driving welfare reform are not primarily budgetary. The programs are widely viewed as failures, and the federal government can think of nothing new to try. In view of welfare's sorry long-term track record, yet another federally sponsored job or training program seems pointless. The feds are passing the buck to the states, hoping that somewhere in the numerous separate jurisdictions someone will hit on something that will work.

LITTLE IMPACT. The bipartisan dissatisfaction with welfare is the result of three factors: One is that welfare was originally sold as a widow's allowance. But with the passage of time, it turned into an allowance for women with illegitimate children. In effect, welfare became a barrier against family formation.

A second factor is that welfare has ceased to be a safety net and has became a way of life. Welfare was supposed to protect people while they got back on their feet. For many, however, with limited career prospects, a welfare package consisting of Aid to Families with Dependent Children, food stamps, Medicaid, housing assistance, nutrition assistance, and energy assistance has proved to be more attractive than earned income. According to a recent Cato Institute study, in 28 states and the District of Columbia, this welfare package is worth more than the starting salary for a secretary. In 46 states and the District of Columbia, it exceeds the earnings of full-time janitors. In eight states and the District of Columbia, the benefits exceed the national average for first-year teachers' salaries. In five states and the District of Columbia, welfare benefits exceed the national median wage for computer programmers.

A third factor is that we have spent $5 trillion since President Lyndon B. Johnson began the War on Poverty--with very little impact on the poverty rate.

It remains to be seen whether reform will succeed in uncovering more successful approaches to welfare or even in limiting the growth of welfare spending. There is nothing in the current reform bill that would reduce the demand for welfare. Still, if the bill succeeds in making states more resistant to expanding their welfare expenditures, the package of welfare benefits may become a less attractive alternative to employment over time.

JUDICIAL SCRUTINY. However, the courts have not been heard from, and there is every reason to expect federal judges to intervene--not perhaps with Congress, but with state and local attempts to curtail welfare benefits. The problem with welfare is that "protected minorities," as defined by the courts, are disproportionately represented. Therefore, welfare cuts will be seen as having a disparate impact on a protected class and as ipso facto proof of race and gender discrimination.

It is only a matter of time before a federal judge makes this discovery. On Nov. 8, Federal District Judge Robert P. Patterson Jr. blocked a 25 cents fare increase (20%) by New York City's Metropolitan Transportation Authority on the grounds that it would have a disparate impact on protected minorities. The judge was swayed by statistics showing that 60% of the city's subway riders are members of minority groups. It appears that if the MTA wants the New York City fare increase to stand, or to avoid future controversy, it must raise fares on suburban commuter railways by the same amount. Since the suburban commuters are primarily white, only a balanced fare increase can be interpreted as a nonbiased action. Yet a different judge could just as easily treat the city and suburbs as two separate markets and still rule against the subway fare hike because it will have a disparate impact on minorities.

If a city's subway fares attract this level of judicial scrutiny, which many find overreaching, then it seems obvious that welfare reform will be similarly challenged for its disparate impact.

Before it's here, it's on the Bloomberg Terminal.