States Brace for New Safety Net Money

By: - February 12, 2009 12:00 am


Sources: Compiled by the Nelson A. Rockefeller Institute of Government using data from the federal budget and the Congressional Budget Office

Aid for the poor is a top priority in the Obama administration’s economic stimulus proposal – in part because research shows that putting cash in the pockets of low-income families is one of the best ways to jumpstart the economy.

Not including an estimated $87 billion hike in Medicaid – federal-state health insurance for the poor – and billions more in low-income tax breaks, the just approved $789 billion economic stimulus package includes as much as $64 billion for the major safety net programs: Food Stamps, unemployment insurance, welfare, child care subsidies, home energy assistance and community service grants.

But with demand for these programs already soaring and state budget cuts taking a toll on social welfare staff and their computer and phone systems, some states may be hard-pressed to handle the massive infusion of new money once it starts to flow.
In the case of welfare increases, distributing the proposed $2.5 billion to $3 billion in cash assistance to those hardest hit by the recession could be nearly impossible for most states, experts say. The proposal would require states to start serving more people, which is the opposite direction states have been taking.
“We just spent more than a decade under welfare reform pushing people away. Now we’re going to tell them it’s important to take the money and spend it,” said Chauncy Lennon, vice president of Seedco , a non-profit group that helps low-income families get access to public assistance.
Most states will not be willing or able to increase their rolls quickly enough to take advantage of the new funding, said Jack Tweedie, director of poverty programs for the National Conference of State Legislatures (NCSL).
In Michigan, for example, welfare rolls are tumbling even as poverty rates spike. That’s because the Great Lakes state, like most others, has strictly enforced federal rules requiring low-income recipients to attend work programs before they can get cash assistance.
“Welfare rolls have been going down for years. Turning it around now just isn’t going to happen,” said Judy Putnam, communications director for low-income advocacy group, Michigan League for Human Services .
Over the proposed two-year stimulus period, the fire hose of new money would increase annual federal funding for major state-administered safety net programs by about 30 percent, according to an analysis by and the Nelson A. Rockefeller Institute of Government , which studies state policies.
Poverty experts agree that such a windfall is unprecedented. In previous recessions, federally funded Food Stamp enrollment has gone up, Medicaid spending has risen and Congress has voted to extend unemployment insurance. But never has the entire safety net been fortified, said Arloc Sherman, poverty expert at the Center for Budget and Policy Priorities .
“The increase in low-income assistance programs comes in response to a critical need to get money into the economy, and the best way to do that is to give it to people who have no choice but to spend the money,” he said.
But besides anticipated difficulties in spending the increased welfare funds, states face another hurdle: To receive their share of $7 billion in stimulus money for providing unemployment benefits to more low-income workers, more than half of all states will have to enact new legislation.
Texas, for example, would get $550 million in federal money under the program if it adopted new rules to include part-time laborers and those with a sporadic work history. But state unemployment director Larry Temple told, “The so-called quick money would run out real quick, and the only way to keep the program going would be to raise business taxes.”
The bulk of the federal unemployment benefits money, about $36 billion, will flow through state agencies that already are overburdened by spiraling demand. To help cut down on delays, the stimulus package includes $500 million to cover states’ increased unemployment administrative costs.
State Food Stamp offices are also swamped by skyrocketing demand and experts say retooling computer systems to calculate new benefits under the stimulus package will add even more work. Nearly every safety net program is likely to be squeezed by the dual pressures of rising demand and expanded coverage.
On top of that, many states already have cut funding and staffing for low-income assistance programs.
“There isn’t a legislator or governor who doesn’t know there’s money available for all of these assistance programs, so they’re at least thinking about it, if not including it in their budgets,” said Michael Bird, federal affairs counsel for NCSL. But while the debate in Washington dragged on, Bird said many states faced budget deadlines that required immediate action.
In Vermont, Republican Gov. Jim Douglas earlier this month called for laying off 600 state employees – many in social welfare positions. Advocates for the poor criticized him for making the cuts when they said more than $1 billion in federal stimulus money was headed Vermont’s way.
California’s Republican Gov. Arnold Schwarzenegger also cut social welfare spending and is planning further cuts and layoffs. And Connecticut’s Republican Gov. M. Jodi Rell last week announced social services budget cuts, but so far, no staff reductions.
Another concern for states is that the stimulus money is temporary. As a result, many state agencies may choose to add temporary, rather than permanent staff, so they won’t have to lay off state workers when the stimulus money ends, said Jerry Friedman, director of the American Public Human Services Association , which represents state welfare agencies. 
Once states add the staff and make any necessary computer fixes, he said, “the vast network of public welfare programs makes it possible to drop in the stimulus money without greatly raising administrative costs.”
See Related Stories:
Jobless rates up in every state (1/29/2009)
Contact Christine Vestal at [email protected] .

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Christine Vestal

Christine Vestal covers mental health and drug addiction for Stateline. Previously, she covered health care for McGraw-Hill and the Financial Times.