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February 21, 2005 Money for nothing In reading through a Newsday story this week on Mayor Michael Bloomberg's welfare policies (the upshot: not as draconian as Rudy Giuliani's, but pretty close), my eye happened upon this sentence:
This is the sort of statistic that that newspaper journalists like to throw around with abandon, knowing that no one's likely to make them explain what it means. Out of every dollar in welfare, 25 cents comes from city funds, as opposed to state or federal? Or city overhead costs amount to one-quarter of the welfare block grants received from the feds? And what's a "dollar paid to clients" mean, given that much of welfare spending these days, especially in cities like New York, goes to non-cash benefits like child care or job training? More than that, though, this factoid got me thinking about how we think about the cost of government programs. In my other writing life, I'm used to looking at corporate subsidy programs that are justified in terms of the economic activity they generate. (Or, at least, that paid consultants like Ernst & Young claim they'll generate.) Nobody ever writes that "out of every dollar in property-tax breaks handed out by New York City, 100% comes from the city budget" - because the assumption is that you're putting this money out in order to get increased tax revenues back later. And when it comes to social programs like welfare, the idea of the expense as an investment in future returns is seldom if ever raised. And yet it should be. From a gross economic-impact standpoint, ultimately government spending is government spending; whether you're paying people to build houses or Stealth bombers, you're putting money into people's hands, money that they'll later spend on goods for themselves. One of the principal concepts for evaluating the effectiveness of government spending on a local economy is "leakage": How much of the money gets taken out of the local economy (and spent, say, on Swiss chalets for Northrop Grumman execs), and how much gets recirculated. If you think about it, public benefits like welfare should be expected to have very, very low rates of leakage. For every dollar handed to a welfare recipient, you can bet that that's a dollar that will be re-spent immediately on groceries, or a babysitter, or a rent or utility check - all things that should be expected to keep the cash in local circulation. (Even if they spend it all at a local liquor store, that's just as good for economic-impact purposes.) Give a tax break to Wal-Mart, and a chunk of the proceeds gets siphoned off to corporate headquarters in Arkansas; provide an increased Earned Income Tax Credit to low-income families, and odds are the effects won't spread much beyond your city limits. None of which is to say, of course, that welfare should be looked at primarily as an economic development strategy - any more than one should build public parks just to give tourists somewhere to walk around between spending their euros on hotel rooms and restaurant tabs. But economic impact of social spending is something that's too often left out of the equation, and skews the balance when comparing certain government expenses to others. I've asked around a bit and done some web searches for studies of the economic impact of social spending, without much luck: There's one study projecting a "negative ripple effect" on California's economy from denying food stamps to legal immigrants, but not a heck of a lot else out there. If anyone has more info on this topic, please drop me a line. I'll report back on any findings in future weeks.
This is the "participation rate" question, and it's one of those strange-bedfellows issues that I mentioned last week. In a nutshell, here's how it works: The 1996 "welfare reform" law instituted piles of new requirements for anyone receiving welfare benefits, from working 25 hours a week (in either real jobs or unpaid "workfare") to a five-year lifetime limit to a one-year cap on going to school. But there was a loophole: States only had to ensure that 50% of their total welfare caseload met the new requirements - and even less if they qualified for "caseload reduction credits" for cutting the rolls. (Rudy Giuliani's slash-and-burn was so successful that New York's required participation rate now stands at zero.) The result was a sort of triage, where if your state booted enough folks from the rolls up front, it could happily allow those remaining to do whatever it felt was best - even if that was otherwise verboten activities like getting a two-year associate's degree. The much-heralded "success" of welfare reform, in other words, was in large part a result of the degree to which states were free to ignore its most draconian aspects. The Bush plan - currently scheduled to begin discussion in Congress next month, though we've heard that before - would change all that: the participation rate would now be a hard 70% cap, with only limited caseload reduction credits available. (In particular, the caseload-reduction calculations were recalibrated so that only recent cuts would count, not the huge reductions that states instituted during the economic boom of the late 1990s.) As a result, states would suddenly be forced to get 70% of their caseloads into mandatory work programs - something that, as you can see from this table, almost none of them are close to achieving. And that's what's causing conniptions among state and local politicians, even those who are otherwise happy to cut welfare programs. When the new participation-rate proposals first came to light, I spoke with New York state assemblymember Deborah Glick, who serves on the National Conference of State Legislators' welfare task force. (She is not, for the record, one of those who are otherwise fine with slashing welfare.) "This is a proposal that we are likely not to be able to meet," she said, predicting that in desperation, states would start pushing people willy-nilly into workfare programs - not because they've proven successful at getting people off welfare or out of poverty (they haven't), but because they're the simplest way to "ensure people are showing up for work somewhere." Right now the proposed welfare law changes are taking a back seat in Washington to Bush's budget cut proposals, but that won't last long - the latest extension of the Temporary Assistance to Needy Families program expired at the end of March, and Congressional Republicans are expected to make another push to get a new law passed before then. Obscure provisions like the participation rate could hold the key to the future of welfare - and welfare recipients - so let's hope this debate doesn't get lost in the budget shuffle.
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