Heritage Foundation: Stimulus Will Stimulate State Welfare Rolls

The Heritage Foundation sees a dangerous stimulus to states expanding their welfare rolls in the new stimulus bill.

A key part of the Clinton-era welfare reform was changing the way the federal government reimbursed states for state welfare spending, switching to a flat rate that did not increase just to adjust to increases in the number of people in the state enrolled in welfare. Now:

For the first time since 1996, the federal government would begin paying states bonuses to increase their welfare caseloads. Indeed, the new welfare system created by the stimulus bills is actually worse than the old AFDC [Aid to Families with Dependent Children] program because it rewards the states more heavily to increase their caseloads. Under the stimulus bills, the federal government will pay 80 percent of cost for each new family that a state enrolls in welfare; this matching rate is far higher than it was under AFDC…..The House bill provides $4 billion per year to reward states to increase their TANF [Temporary Aid to Needy Families] caseloads; the Senate bill follows the same policy but allocates less money.

Proponents of the stimulus plan might argue that these changes are necessary to help TANF weather the current recession. This is not true. Under existing TANF law, the federal government operates a TANF "contingency fund" with nearly $2 billion in funding that can be quickly funneled to states that have rising unemployment. It should be noted that the existing contingency fund ties increased financial support to states to the objective external factor of unemployment; it specifically avoids a policy of funding states for increased welfare caseloads, recognizing the perverse incentives this could entail.

If the authors of the stimulus bills merely wanted to provide states with more TANF funds in the current recession, they could have increased funding in the existing contingency fund. But they deliberately did not do this. Instead, they completely overturned the fiscal and policy foundations of welfare reform.

Michael Lynch in 2002 and Cathy Young in 2006 surveyed for Reason some of the successful results of the 1996 welfare reform.