July 7, 1994
Legislative Analyst's Office, State of California
On June 14, 1994, President Clinton formally released his welfare reform proposal, generally designed to facilitate employment for AFDC recipients. Major changes include:
* Making the current JOBS Program (GAIN in California) more employment-oriented, and phasing- in its participation starting with AFDC parents born after 1971.
* Establishing a two-year time limit on JOBS and requiring those who reach this time limit to participate in a new WORK Program, which would place individuals in jobs paying wages subsidized in whole or part by the government.
* Making other AFDC program changes, including increasing the resource limits for AFDC eligibility.
* Adopting various changes in the child support enforcement program.
This policy brief assesses the proposal's fiscal impact on California. We conclude that:
* The proposal would result in five-year state costs (state and county funds) ranging from $380 million to $510 million. These costs may be offset at least in part by unknown savings from reduced dependency on AFDC, due primarily to increases in employment and increased child support collections.
* State costs beyond the five-year timeline would increase significantly as more AFDC recipients are phased into the JOBS and WORK programs. In the sixth year of welfare reform, for example, state costs for the WORK Program would be $130
* The single largest cost to the state (about $245 million over five years) is not the result of providing employment and training services through the JOBS and WORK programs. Rather it is due to increasing the AFDC resource limits, thereby making more individuals eligible for aid. If the resource limit proposal were deleted by Congress, California's
five-year costs would be cut almost in half.
On June 14, 1994, President Clinton presented his proposal to reform the nation's welfare system (SB 2224 and HR 4605). The proposal focuses on facilitating employment for AFDC recipients, providing support services for AFDC teen parents, and increasing
child support enforcement.
In this policy brief, we summarize the key features of the plan and its potential effects on state and local governments in California.
In 1988, the federal government established the Job
Opportunities and Basic Skills Training (JOBS) Program, designed
to provide education, training, and employment services to AFDC
recipients. In California, this program is known as the Greater
Avenues for Independence (GAIN) Program.
The President's proposal would modify the JOBS Program in
several key ways. Figure 1 summarizes the major proposed changes
and compares them with the existing requirements of the GAIN
Several of these changes are worth highlighting because they
illustrate a difference in approach to employment and training
between the President's plan and the current GAIN Program.
Specifically, the President's plan places a greater emphasis on
(1) moving participants through the program in a specified period
of time (two-year time limit) and (2) connecting participants as
quickly as possible to the job market (job search before basic
education; employment-oriented education instead of basic/
remedial education; requiring acceptance of a job if offered).
Another significant change in the President's proposal is
that mandatory participation is limited to those born after 1971
(initially, those under age 25). Thus, with each passing year,
the age limit for those required to participate in the program
will increase, thereby resulting in an increasing percentage of
We estimate that for California, the changes in the JOBS
Program would result in savings to the state of approximately
$150 million during the first five years of implementation. This
estimate assumes that the state would serve voluntary
participants (from the non-mandatory group) up to the point where
the state reaches the federal funding cap on JOBS, as required by
President's Proposed Changes in the JOBS (GAIN) Program
CURRENT LAW PRESIDENT'S PROPOSAL
Mandatory participation Mandatory participation by all
unless child under three, AFDC parents born after 1971,
if funding is sufficient. unless child under one year,
and all volunteers (from the non-
mandatory group) up to the federal
Penalizes states for not Penalizes states for not serving
serving 20 percent of all 50 percent of mandatory
mandatory participants and participants.
50 percent of AFDC-U reci-
pients (federal fiscal year
Targeting of Services
Targets services by giving Eliminates target groups
priority to certain groups for receiving services
-- teen parents, long-term
No requirement that deferred Requires that all persons deferred
persons participate in any from JOBS (due to temporary
employment activity disability or child under one)
engage in some preparation for JOBS
No time limit Establishes two-year limit
(followed by the WORK Program)
Sequence of Services
Job search after basic Requires job search immediately
education, if needed after orientation
Requires basic and remedial Replaces requirement for basic/
education if needed remedial education with
Participants can refuse Requires participants to accept job
jobs if wages are below if offered, and increases sanction
specified levels on participants for noncooperation
Provides 50 percent federal Establishes 65 percent federal
funding for most program funding in FFY 1996, increasing to
components 70 percent by FFY 2000. Increases
the nationwide federal funding cap
The proposal results in a savings to the state primarily be
cause of the increase in the federal share of program costs,
including the cost of case management for teen parents in the
state's Cal Learn Program.
The President proposes to establish a new WORK Program, which
would be required for the new mandatory group of JOBS
participants (born after 1971) once they have been on aid for two
years (excluding time in Pre-JOBS and time in which an individual
worked at least 20 hours per week).
Under the WORK Program, persons who are not already working
more than an average of 20 hours per week would be placed in a
subsidized private- or public-sector job, with the government
subsidizing part or all of the wages. (For private-sector jobs,
the employer would have to pay for part of the wages.) The
government would provide supplemental cash benefits if necessary
to augment wages so that the family is no worse off than a
nonworking family on AFDC.
Participants would receive child care, transportation, and
other support services if needed. If WORK assignments are not
available, the family would receive regular AFDC benefits and
would engage in job search activities while waiting for a WORK
Federal financial participation for the WORK Program would be
the same as for the JOBS Program (65 to 70 percent), and the
amount of federal funds for these programs would be capped
nationwide, except that funding for wages would be matched at the
state's regular AFDC rate (50 percent in California) and would
not be capped.
We estimate that the WORK Program in California would result
in a state cost of $210 million in the first five years of
welfare reform. It is important to note that this represents only
three years of operation of the WORK Program, and that the cost
would increase significantly in subsequent years as more AFDC
recipients are phased into the two-year time limit for the JOBS
Program. The state cost in the sixth year of welfare reform, for
example, is estimated to be $130 million.
We also note that state costs would be higher if the cap on
federal funds is not sufficient to meet mandated costs for the
JOBS/WORK -- REDUCED DEPENDENCY IMPACT
The President's proposals are likely to increase the
proportion of AFDC recipients who obtain employment, for several
reasons. First of all, the JOBS program would be expanded (on a
phase-in basis) and made more employment-oriented. Secondly, the
two-year time limit and the establishment of the WORK Program
mean that eventually most recipients will have an obligation to
work in a subsidized job if they are not employed in a
nonsubsidized job. In other words, not working would no longer
be an alternative. This change, in conjunction with the fact that
nonsubsidized jobs generally will provide more income to
recipients than will WORK slots (due largely to differences in
how the income disregard discussed below and the Earned Income
Tax Credit are treated), could lead to a significant increase in
the incentive for recipients to obtain nonsubsidized jobs.
Furthermore, the experience gained in the WORK Program should
make participants better qualified for employment.
Consequently, it is reasonable to assume that the provisions
relating to the JOBS and WORK programs will result in an increase
in nonsubsidized employment and associated savings due to a
reduction in AFDC caseload and lower grants. (These savings would
be partly offset by additional Transitional Child Care and
Transitional Med-Cal costs.) Additional savings could result from
the provisions to make more stringent the sanctions on recipients
for insufficient cooperation in the JOBS Program.
OTHER AFDC-RELATED PROGRAM CHANGES
AFDC RESOURCE LIMITS
The proposal would increase from $1,000 to $2,000 the maximum
amount of re sources (with certain items excluded) that a family
can have and be eligible for AFDC. Under current state law, the
resource limit for applicants is $1,000 but the state is
operating under a federal waiver that provides for recipients a
$2,000 limit (the higher limit is operable once a person is on
The proposal also provides that the automobile resource limit
be increased from $1,500 to $3,500. Under current state law, the
limit is $1,500 for applicants but, pursuant to a waiver, $4,500
Because the increase in resource limits would apply to
applicants as well as recipients, these provisions would increase
the AFDC caseload and result in additional state costs of about
$245 million over the first five years. These costs would be
partly offset by unknown savings to counties due to reduced
caseloads in the General Assistance program.
AFDC Teen Parents' Residence
This proposal requiring teen parents to live with their parents
or other responsible adult in order to receive AFDC is the same
as pro posed by the Governor in the 1994-95 budget. The budget
estimates that the proposal would result in no net costs or
savings. (The Governor's proposal was not adopted by the
AFDC Grant Determination Rules
This proposal would replace the existing rules for income
disregards (in calculating AFDC grants) with a flat $120 income
disregard, but would allow states to adopt higher disregards of
up to 50 percent of earned income. California is currently
operating under a federal waiver to apply the $30 and one-third
income disregard with out regard to time in employment. We assume
that the state will continue its current policy for the AFDC
Program, but will apply the flat $120 disregard to earnings in
the WORK Program. The fiscal effect is subsumed in our estimates
for the WORK Program.
Child Care for the Working Poor
The proposal would expand funding for the At-Risk Child Care
Program for low-income working families not on AFDC. This program
is designed to prevent participants from going on public
Based on the administration's projected five-year costs for
the nation, we estimate that California could receive an
additional $280 million in federal funds. The net increase in
state costs (to provide the required match) would be about $20
million when considered in conjunction with the existing funding
level for the At-Risk program. The relatively low net cost is due
to savings that would be realized in the existing program due to
the proposed increase in the federal share of costs (corres-
ponding to the JOBS Program match). We also note that the
additional child care could result in unknown cost-avoidance in
the AFDC and Med-Cal Programs.
CHILD SUPPORT ENFORCEMENT PROGRAM
The President proposes numerous changes to the financing and
operation of the child support enforcement program. Figure 2
summarizes the financing changes and Figure 3 summarizes the
changes in program operations.
The three financing provisions that would have the most
significant fiscal effects are (1) the federal match of
administrative costs, (2) the performance incentives, and (3) the
maintenance of effort provision.
The proposal would change the federal matching requirements
for the child support enforcement program. Under the current
system, the federal government pays for 66 percent of most
administrative costs and a variable per cent generally 6 to 6.5
percent in California of child support collections. Under the
President's proposal, all federal financial participation would
be based on administrative costs and could reach 95 per cent,
with (1) the base percentage increasing annually to 75 percent in
FFY 1998, (2) an additional performance- based amount up to 15
percent, and (3) an additional 5 percent for states with a
state-operated child support enforcement program, beginning in
FFY 1998. Also, enhanced funding at 90 percent would be provided
for development and implementation of automated central
registries and for paternity outreach (and genetic testing, as
Proposed Changes in Child Support Enforcement
* Federal Match of Administrative Costs. Increases from 66 per
cent to 69 percent in federal fiscal year (FFY) 1996, 72
percent in FFY 1997, and 75 percent annually there after.
* Performance-Based Incentives. Replaces the existing federal
incentive payments, based on child support collections, with
performance incentives of up to 15 percent of administrative
costs, effective FFY 1998.
* Maintenance-of-Effort. Requires states to maintain total pro
gram expenditures for each year, at a level determined by a
* Paternity Establishment. Penalizes states for not
establishing paternity in a specified percentage of cases
within one year.
* Distribution of Arrearage Collections. Requires that
collections for AFDC arrearages for custodial parents who
were formerly on AFDC be paid directly to the custodial
parent rather than used to offset prior government costs for
the grants, effective FFY 1998.
* Paternity Outreach. Provides enhanced (90 percent) federal
funding for these activities.
* $50 Pass-Through. Requires inflation adjustments to the
"pass-through" of collections to the custodial parent.
Proposed Changes in Child Support Enforcement
Program Operations Changes
* Central Registry. Requires establishment of an automated
registry of all cases.
* Enforcement of Non-AFDC Cases. Requires states to enforce all
non-AFDC cases except under specified circumstances, rather
than only upon request.
* Non-AFDC Awards. Requires periodic updating of awards (for
example, reviewing changes in parent's income) unless
requested otherwise, rather than only on request.
* Hospital-Based Paternity Establishments. Strengthens existing
requirements and requires paternity outreach efforts.
* Administrative Procedures. Facilitates greater use of these
procedures to reduce the reliance on courts.
* Noncooperation by Custodial Parent. Strengthens existing
penalties for not cooperating with state child support
* Suspension of Licenses. Requires suspension of drivers' and
professional licenses for persons with specified levels of
delinquency in child support obligations.
* Enforcement Tools. Establishes and strengthens various
enforcement tools, such as use of administrative liens and
providing access to credit reports and financial and other
records to locate absent parents.
* Federal Interstate Enforcement. Strengthens federal
activities, such as the federal parent locator service.
* Directory of New Hires. Establishes a directory at the
federal level to assist states in locating noncustodial
The proposal also includes a maintenance of effort provision
for total program spending, effective in FFY 1996. This
provision, however, would require the state to do more than
simply maintain its existing expenditure effort. Instead, it
would have the effect of requiring the state to increase its
current level of spending, with the amount varying inversely with
the amount of the federal matching funds. In other words, if the
state qualifies for a relatively high federal match in
performance-based incentives, its maintenance of effort
requirement will be lower than if the state does not do well on
the performance measures. Thus, the maintenance of effort
provision would have the effect of magnifying the importance of
the performance incentives.
We estimate that these three financing provisions will
increase total spending (federal and state) for the child support
enforcement program in California by $235 million over the first
five years. This consists of an increase in federal funds ranging
from $70 million to $200 million and additional state/county
spending ranging from $35 million to $165 million. The federal
share will be proportionately higher, and the state share
proportionately lower, depending on how well the state does in
the performance-based incentives. These five-year cost increases
represent about a 13 percent increase above the amount projected
under current law.
In addition to these three major financing provisions, there
are two other financing provisions with fiscal implications for
the state. First, we estimate that the state would save about $20
million annually, beginning no earlier than FFY 1998, from
additional federal matching funds if the state converted to a
state-operated, rather than the existing county-operated,
system. (This is an option that we recommended in our report on
the child support enforcement program in The 1992-93 Budget:
Perspectives and Issues.)
Second, the proposal provides that, effective FFY 1998,
collections for AFDC arrearages for custodial parents who were
formerly on AFDC be paid to the custodial parent rather than used
to reimburse the government for the costs of the grant, as
currently authorized. We estimate that this provision would
result in costs to the state and counties of about $20 million
over the first five years of welfare reform, offset by an unknown
amount to the extent that the additional income results in
families not returning to AFDC or using other public assistance.
CHANGES IN PROGRAM OPERATIONS
Some or all of the additional spending resulting from the
financing provisions (discussed above) would be applied toward
the various program changes required by the proposal. If the
actual costs of mandated program changes exceed the increase in
spending pursuant to the financing provisions, the state would
incur additional costs beyond the expenditures resulting from the
The fiscal effect of the proposed program changes on the
state would fall into three basic categories: additional
administrative costs, resulting from various provisions;
potential penalties from not meeting paternity establishment
standards; and savings from reduced AFDC expenditures, resulting
primarily from various provisions designed to increase
Because of data limitations, we are unable to estimate the
net increase in costs resulting from the various proposals. We
note, however, that many of the proposed changes do not vary
significantly from current federal or state law and therefore are
not likely to have a major fiscal impact. Current state law, for
example, requires development of a statewide automation system,
cooperation by custodial parents in providing information to
county district attorneys, an in-hospital paternity establishment
program, a new hire registry (with some limitations), periodic
updating of non-AFDC awards on request, inclusion of non-AFDC
cases on request, and prohibitions against issuance of certain
professional licenses to individuals who are delinquent in child
On the other hand, several provisions could significantly
increase costs. For example, the requirement that all non-AFDC
child support cases be enforced by the state (except under
certain circumstances) could increase administrative costs
substantially. State costs could also increase significantly due
to the provision requiring states to meet specified paternity
Finally, the child support enforcement proposals could result
in state savings to the extent that child support collections
increase, thereby reducing AFDC grant expenditures. It is not
possible to estimate this fiscal effect. As a point of reference,
however, we note that a 1 percent increase in AFDC collections
would result in state and county saving of about $1.5 million.
Some cost-avoidance would also result from increases in non-AFDC
collections, to the extent that this prevents families from going
SUMMARY OF THE EFFECT OF THE CHILD SUPPORT PROVISIONS
The net effect of the President's proposals for child support
enforcement depends on a number of factors. As indicated above,
we estimate that the financing provisions would increase state
expenditures over the first five years by an amount ranging from
$55 million to $185 million, depending on the performance
incentives. Costs, however, could be higher if the program
changes result in costs that exceed these minimum expenditures
required by the financing provisions. In general, we believe that
the cost of the program changes probably can be accommodated
within these amounts.
It is not possible to estimate the effect of the proposed
changes in bringing about a higher level of child support
collections. Clearly the program changes and the additional
spending would have some effect on increasing collections. This,
in turn, would result in savings from reduced AFDC grant
expenditures. We note, however, that if a large share of the
additional resources goes into the enforcement of non- AFDC child
support cases, the savings to government will be relatively low
because there is no direct offset to grants in these cases.
PROPOSALS FOR FINANCING THE FEDERAL COST OF WELFARE REFORM
The Clinton administration estimates that if its welfare
reform proposal is adopted, it would result in costs of $9.3
billion to the federal government over the first five years. The
President's proposal includes various provisions designed to
save funds at the federal level in order to finance these new
federal costs. The major financing components include (1) placing
a cap on federal Emergency Assistance funds allocated to states,
(2) extending the period for deeming aliens' sponsors' income
from three to five years in the AFDC Program, (3) eliminating
SSI/SSP and AFDC eligibility for aliens whose sponsors' incomes
are above the U.S. median, (4) conforming eligibility, for
certain immigrants, for SSI/SSP, Medicaid, and AFDC to the more
restrictive criteria in the Food Stamps Program and (5) limiting
to three years SSI/SSP eligibility for drug- and alcohol-addicted
Due to a lack of sufficient information, it is not possible
at this time to estimate the net fiscal effect of these financing
provisions on California. Some provisions would result in state
savings while others would result in costs. Of the major
provisions noted above, the cap on federal Emergency Assistance
funds would result in costs to the state, and the other
provisions would result in savings. The restrictions on
eligibility for aliens and immigrants to receive AFDC, SSI/SSP,
and Medicaid, however, could result in state costs rather than
savings if the state decided to continue to provide assistance to
those individuals affected.
The net effect could be costs or savings, depending primarily
on how the administration applies the Emergency Assistance cap to
SUMMARY OF FISCAL EFFECT
Figure 4 summarizes the estimated fiscal effect of the
President's proposal on California. Combining all components of
the proposal, we estimate that it would result in five-year
costs ranging from $380 million to $510 million to the state
(combined state General Fund and county funds), offset at least
in part by unknown savings from reduced dependency on AFDC and
increased child support collections. We also note that costs
would increase significantly in subsequent years as more AFDC
recipients are phased into the new JOBS and WORK programs. For
example, the state cost for the WORK Program in the sixth year of
welfare reform would be $130 million.
President's Welfare Reform Proposal
Fiscal Effect On California
Summary: Estimated five-year costs ranging from $380 million to
$510 million to the state General Fund and county funds, offset
at least in part by unknown savings from reduced dependency on
AFDC due primarily to increases in employment and child support
collections. Costs in subsequent years would in crease
significantly due to phase-in of mandatory participation in the
JOBS and WORK programs.
Program Five-Year State/County Fiscal
Savings. $150 million, due primarily to
increased federal funding match for
JOBS, including case management for
teen parents. Additional unknown,
but potentially significant,
savings from reduced AFDC
dependency, depending on the
expanded program's effect on
increasing the level of employment
Costs. $210 million. (This represents three
full years of WORK Program costs because
virtually no costs would be incurred in
the first two years of welfare reform.)
Costs would increase significantly in
subsequent years as more AFDC
recipients are phased into the two-year
limit for JOBS.
Savings. Unknown, but potentially significant,
savings from reduced AFDC dependency,
depending on the program's effect on
increasing the level of nonsubsidized
employment by AFDC recipients.
AFDC Resource Limits
Costs. About $245 million due to increased AFDC
caseload, partly offset by unknown
county savings in general assistance.
AFDC Teen Parents' Residence
Costs. No net fiscal effect. Grant savings
offset by administrative costs.
At-Risk Child Care
Costs. $20 million net costs for state match.
Unknown cost-avoidance in the AFDC and
Med-Cal Programs from additional child
Child Support Enforcement:
Costs. State/county costs ranging from $55
million to $185 million.
Costs. Unknown potential costs to the extent
(1) state costs of the program changes
exceed the expenditures required by the
financing provisions, as shown above,
and (2) the state incurs penalties for
not meeting paternity standards.
Savings. Unknown but potentially significant
savings in the AFDC Program due to
increased child support collections.
Federal Financing of Costs or savings unknown, depending
Welfare Reform primarily on the effect of the cap on
Emergency Assistance funds.
This report was prepared by Bill Lucia, under the supervision
of Chuck Lieberman. For paper copies, contact:
Legislative Analyst's Office
State of California, 925 L Street, Suite 1000
Sacramento, CA 95814