Can Workfare Really Work?

States are in a bind as federal mandates collide with reality

When Bill Clinton proposed in 1992 to "end welfare as we know it," he envisioned $10 billion in new spending to help train welfare mothers and provide them with child care. Four years later, Congress passed the Personal Responsibility & Work Opportunity Reconciliation Act of 1996, a monumental overhaul that ended 60 years of federal protection for poor mothers and children.

The problem: Congress gave states responsibility for poverty programs and set rigid requirements for performance, but it didn't add funding to make everything work. Instead, the bill slashed projected welfare spending by $56 billion over six years--even as early experiments demonstrated that removing people from the dole required more money, not less. States and cities argue that they--and workfare participants--will end up holding the bag. "The way it's structured amounts to an unfunded mandate," says Tony Coles, who directs New York City's workfare program.

Now, as states near the July 1 deadline for submitting workfare plans to the Labor Dept., Washington policymakers are getting a taste of the fiscal crunch to come. Congress and the White House are grappling with crucial unfinished business: how much to pay workfare participants, and how that wage should be calculated. What looks like just another arcane Capitol Hill squabble over technicalities actually could help determine whether welfare reform flies.

IN A BIND. The fracas is erupting as welfare's new work rules meet the minimum-wage law head-on. Under the reform bill, workfare participants from single-parent families must work a minimum of 20 hours a week--and 30 hours by 2002. In return, most of those in public-sector assignments receive the same monthly checks for state Temporary Assistance for Needy Families (TANF), which has replaced the old Aid to Families with Dependent Children, plus Food Stamps, Medicaid, and other benefits, that they got before working.

At the same time, states face a Labor Dept. ruling, handed down on May 22, that workfare participants are protected by the Fair Labor Standards Act of 1938 and thus are entitled to the federal minimum wage (currently $4.75 an hour). This poses no immediate problem for rich states such as California and New York, which receive relatively large block grants. In California, for example, the average monthly TANF benefit is $538 for a family of three--enough to cover 25 hours of work at the minimum wage.

But poor states are in a bind. In Alabama, where the average monthly TANF benefit to a family of three is just $160, the mandated 20-hour workweek adds up to a puny $2 an hour, way below the legal minimum. Yet failing to meet the work requirements would invite reductions in the already insufficient block grants. "It's a double penalty," says Joel N. Sanders, who runs Alabama's welfare-reform program.

In response, a House Ways & Means subcommittee produced legislation on June 5 that would let states figure workfare participants' wages by including the value of Food Stamps, Medicaid, child care, and housing benefits. The Administration will probably fight the plan, but White House sources acknowledge that Food Stamps, valued as high as $313 a month for a family of three, will very likely be included in the final calculus.

The White House, supporting labor unions, believes that diluting the minimum wage by including more benefits will exacerbate a two-tier labor market and accelerate the displacement of large numbers of existing employees from permanent jobs. New York City, for example, has promised that workfare people won't take the place of union employees. Yet it has reduced its Parks Dept. payroll by thousands over several years, and it recently added thousands of workfare employees to fill similar roles. A municipal union is seeking a temporary restraining order to prevent hiring workfare participants into positions once held by unionized painters.

Advocates for the poor, moreover, argue that the Ways & Means committee proposal will accentuate the downward pressure on pay of all low-income workers. Even at the minimum wage, Washington's Economic Policy Institute estimates that the influx of welfare workers into jobs will depress pay by at least 11% for those already at the bottom rung. Wages will fall even more, these experts say, as states start subsidizing more private-sector jobs. Oregon has already reduced its welfare caseload by 40% in the past two years, in part by subsidizing $5.50 of the $6.32-an-hour average pay for 2,700 workers in hundreds of companies around the state. Eventually, say critics, such discounting will force nonwelfare workers to accept artificially low pay.

Inclusion of Food Stamps alone would allow every state but Mississippi to pay off the 20-hour workweek at the minimum wage, according to the Health & Human Services Dept. But it acknowledges--and other policy experts agree--that far more states will fall short for the 30-hour week required in five years. As many as 20 states, including Florida, Missouri, and Texas won't be able to meet the tab, HHS reckons.

STRAPPED. That growing gap will widen as states move to shift 50% of their welfare caseloads into workfare by 2002, as mandated by the reform legislation. They can satisfy the requirement by finding private-sector jobs for recipients. So far, though, private companies have been slow to absorb welfare workers. So cities and states must satisfy the work requirement by creating and funding most jobs themselves: New York City, for example, says it has put 145,000 welfare recipients to work since March, 1995, cleaning up city parks or helping sanitation crews. Los Angeles County has enrolled 80,000 in a similar program.

Most states say adding Medicaid and other benefits to the workfare wage calculation lets them underwrite training and child-care programs, rather than having to pour more cash into TANF payments. Ultimately, they argue, those programs will lift recipients into better jobs. In Lyndonville, Vt., Candy DeGreenia, a 29-year-old mother of three, kept her $667 monthly benefit and won state grants for books and child care while she finished a college degree in social work. Now, DeGreenia works for $10.30 an hour, plus benefits, at a nonprofit agency that assists the poor in finding low-income housing. "There is no way I was going to stay on state aid," says DeGreenia. "I wanted more for my kids."

Some conservatives say that punitively low pay can bring similarly successful results. Lower wages, they argue, will encourage workfare participants to get off the dole in search of better pay. New York officials, in fact, brag about the 22% decline in the city's welfare rolls over the past two years--with no apparent increase in homelessness or crime--as evidence that its rigid workfare programs induce people to seek more elsewhere.

Critics of draconian change, though, worry that low pay will only trap workfare participants in a poverty cycle no less vicious then the old welfare system. In New York, "not many people go on to private-sector jobs," says Juan Galan of the Association of Community Organizations for Reform Now, which is trying to organize workfare participants into a union. The more benefits that get counted as part of their wage, advocates say, the greater disadvantage workfare people will suffer vis-a-vis other low-wage employees, many of whom receive Food Stamps and Medicaid in addition to their minimum pay. That's why the poor may yet bear the brunt of Congress' unfinished welfare business.

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