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Federal Document Clearing House
Congressional Testimony
May 1, 2002 Wednesday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 4147 words
COMMITTEE:
SENATE BANKING, HOUSING AND URBAN AFFAIRS
SUBCOMMITTEE: HOUSING AND TRANSPORTATION
HEADLINE: WELFARE REAUTHORIZATION
TESTIMONY-BY: MR. ROBERT RECTOR, SENIOR RESEARCH FELLOW
AFFILIATION: THE HERITAGE FOUNDATION
BODY: Oversight Hearing on "The Federal Deposit
Insurance System and Recommendations for Reform."
Prepared Statement of
Mr. Robert Rector Senior Research Fellow The Heritage Foundation
SENATE
BANKING, HOUSING AND URBAN AFFAIRS
SUBCOMMITTEE HOUSING AND
TRANSPORTATION
Wednesday, May1, 2002
Introduction
Before
I begin, let me first thank the committee for the opportunity to speak before
you today. While I serve as Senior Research Fellow on Welfare and Family Issues
at The Heritage Foundation, I must stress that the views I express are entirely
my own, and should not be construed as representing the position of The Heritage
Foundation.
The traditional War on Poverty was launched in the
mid-1960's. War on Poverty programs (cash, food, and housing) focused on
providing material support and largely ignored the behavioral causes behind
poverty. The welfare reform of 1996 recognized that this old style welfare
system had failed. The reform changed the nature of cash aid: in the future
welfare would continue to provide material support but it would also seek to
transform behavior in a positive way. To understand the lessons of welfare
reform for assisted housing programs, six points are critical:
1.The
pre-reform Aid to Families with Dependent Children (AFDC) program gave aid
permissively and unconditionally. Those in need of aid were given material
support and little was required of them.
2.When the Temporary Assistance
to Needy Families (
TANF) program replaced AFDC, aid became
conditional: recipients were required to undertake constructive activities
leading to self-sufficiency as a condition of receiving assistance.
3.Because of this change, welfare reform has resulted in unprecedented
drops in dependency and child poverty.
4.Public housing remains
unreformed. Current housing programs are very similar to the old AFDC program.
Some 87 percent of families with children receiving housing aid are single
parent families. Aid is given to able-bodied individuals unconditionally; there
is no requirement that the recipient undertake constructive activities leading
toward self-sufficiency and prosperity.
5.Requiring able-bodied
recipients to work or undertake constructive activities has been the key to the
success of the
TANF program. The same principle should be
applied to housing programs.
6.Finally, marriage is critical to the
well-being of children. Like all means-tested aid programs, assisted housing
programs impose strong financial penalties on low income parents who marry. This
is a foolish policy: such anti-marriage penalties should be reduced.
Lessons from Welfare Reform
Nearly six years ago, President Bill
Clinton signed legislation overhauling part of the nation's welfare system. The
Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (P.L.
104-193) replaced the failed social program known as Aid to Families with
Dependent Children (AFDC) with a new program called Temporary Assistance to
Needy Families (
TANF). The reform legislation had three goals:
1) to reduce welfare dependence and increase employment; 2) to reduce child
poverty; and 3) to reduce illegitimacy and strengthen marriage.
At the
time of its enactment, advocacy groups passionately denounced the welfare reform
legislation, predicting that it would result in substantial increases in
poverty, hunger, and other social ills. Contrary to these alarming forecasts,
welfare reform has been effective in meeting each of its goals.
While
critics of welfare reform unanimously predicted that the reform would throw at
least one million additional children into poverty, in fact, 2.3 million fewer
children live in poverty today than in 1996.
Decreases in poverty have
been greatest among black children. Black child poverty has declined by a third
and is now at the lowest point in U.S. history.
Poverty among single
mothers has also been cut by a third and is now at the lowest point in U.S.
history.
The employment rate of single mothers has increased
dramatically. The employment rate of never-married mothers is up nearly 50
percent. Employment among single mothers who are high school dropouts is up by
two-thirds, while employment among young mothers (aged 18 to 24) has nearly
doubled.
Hunger among children has been almost cut in half. According to
the U.S. Department of Agriculture (USDA), there are nearly 2 million fewer
hungry children today than at the time welfare reform was enacted.
Welfare caseloads have been cut nearly in half.
The explosive
growth of out-of-wedlock childbearing has come to a virtual halt. The share of
children living in single-mother families has fallen, and the share living in
married- couple families has increased, especially among black families.
Who gets Credit: Welfare Reform or the Economy?
Some would argue
that the positive effects noted above are the product of the robust economy
during the 1990s, rather than the results of welfare reform. However, the
evidence supporting an economic interpretation of these changes is not strong.
Historically, periods of economic growth have not resulted in lower
welfare caseloads. From 1950 to 1990, there were eight periods of economic
expansion, yet none of these periods of growth led to a significant drop in AFDC
caseload. Indeed, during two previous economic expansions (the late 1960s and
the early 1970s), the welfare caseload grew substantially. Only during the
expansion of the 1990s does the caseload drop appreciably. How was the period of
expansion during the 1990s different from the eight prior expansions? Clearly,
the answer is welfare reform.
Another way to disentangle the effects of
welfare policies and economic factors on declining caseloads is to examine the
differences in state performance. The rate of caseload decline varies enormously
among the 50 states. If improving economic conditions were the main factor
driving caseloads down, then the variation in state reduction rates should be
linked to variation in state economic conditions. On the other hand, if welfare
polices are the key factor behind falling dependence, then the differences in
reduction rates should be linked to specific state welfare policies.
A
Heritage Foundation paper, "The Determinants of Welfare Caseload Decline"
examined the impact of economic factors and welfare policies on falling
caseloads in the states. This analysis showed that differences in state welfare
reform policies were highly successful in explaining the rapid rates of caseload
decline. By contrast, the relative vigor of state economies, as measured by
unemployment rates, changes in unemployment, or state job growth, had no
statistically significant effect on caseload decline.
A recent paper by
Dr. June O'Neill, former Director of the Congressional Budget Office, reaches
similar conclusions. Dr. O'Neill examined changes in welfare caseload and
employment from 1983 to 1999. Her analysis shows that in the period after the
enactment of welfare reform, policy changes accounted for roughly three-quarters
of the increase in employment and decrease in dependence. By contrast, economic
conditions explained only about one-quarter of the changes in employment and
dependence. Substantial employment increases, in turn, have led to large drops
in child poverty.
The economic boom of the 1980's was long and
sustained, but did not result in substantial or enduring declines in poverty
among single mothers or black children. But since the mid-1990's there has been
a sustained and unprecedented drop in the poverty rates for these two groups.
Clearly, the difference has been welfare reform.
Overall, it is true
that the health of the U.S. economy has been a positive background factor
contributing to the changes in welfare dependence, employment, and poverty. It
is very unlikely, for example, that dramatic drops in dependence and increases
in employment would have occurred during a prolonged recession. However, it is
also certain that good economic conditions alone would not have produced the
striking changes that occurred in the late 1990s. It is only when welfare reform
was coupled with a growing economy that these dramatic positive changes
occurred.
Unfortunate Similarities Between Aid to Families with
Dependent Children and Subsidized Housing
Prior to welfare reform, the
old AFDC program provided aid predominantly to single mothers with children.
AFDC provided one way hand-outs: recipients were not required engage in any
significant activities in order to receive aid. It was widely recognized that
this system promoted idleness, single parenthood, and poverty. Consequently the
AFDC system was radically reformed and replaced with the new
TANF program. Under
TANF, recipients would be
required to engage in constructive activities aimed toward self-sufficiency as a
condition of receiving aid. These activities could include: supervised job
search,
training and community service work. As the new
"constructive activity" requirement took effect, welfare caseloads plummeted,
employment of single parent soared, and child poverty fell in an unprecedented
manner.
In many respects, current government housing programs closely
resemble the pre-reform Aid to Families with Dependent Children program. Nearly
half households in subsidized housing are families with children. Some 87
percent of the subsidized households with children are single parent households.
As with pre-reform AFDC system, aid is generally given as an unconditional,
one-way handout; recipients are not required to engage constructive activities
as a condition of receiving assistance.
Thus current housing programs
replicate most of the elements that led to failure in the pre-reform AFDC
system. Housing programs are permissive rather than expectant and demanding.
Housing gives a "hand out" rather than a "hand up". In order to help recipients
to help themselves the highly successful principles of the
TANF
reform should now be applied to subsidized housing.
Applying Work or
Activity Requirements to Housing Programs
The key to the success of
welfare reform has been the establishment of work or activity requirements for
TANF recipients. As recipients have worked more, their incomes
have risen and more have escaped poverty.
The lessons from
TANF are applicable to public housing. While parents in
subsidized housing do maintain higher levels of employment than parents in the
pre-reform AFDC system, these employment levels are still far lower than they
should be. The Census Bureau's Current Population Survey for 2000 indicates that
30 percent of householders with children receiving housing aid did not work at
all during the course of the year. Over half worked less than 1,000 hours during
the year. Overall, only a quarter of parents worked full-time through the year
(2000 hours). An important element in reducing poverty and increasing family
income must be to increase the amount of work performed in these families.
Applying the lessons from welfare reform, "work requirements" should be
established in housing assistance programs. However, it is important to clarify
here a common misunderstandings about work requirements in
TANF. The
TANF program does not directly demand that recipients obtain formal
employment in the private sector or government, and
TANF does
not penalize those who fail to obtain employment. Instead, the
TANF program encourages recipients to obtain employment; those
recipients who claim they cannot find employment are required to undertake other
constructive activities: supervised job search,
training, or
community service. Once a recipient obtains real employment the other required
activities are proportionally reduced.
The impact of this system on
employment is profound. Once recipients are required to be continuously active
rather than idle, they have a strong incentive to obtain employment. The
indirect result is a surge in actual employment and a drop in poverty.
This principle should now be incorporated into housing programs. As a
general rule, able bodied, non-elderly recipients in public housing and
project-based Section 8 housing should be required to work a substantial number
of hours per week. Recipients who are unable or otherwise fail to maintain the
required level of formal employment should be required to participate in job
training, supervised job search, or community service work.
Those who are employed for only a few hours each week should supplement their
employment with participation in these other constructive activities.
Participation in work activities under the Temporary Assistance to Needy
Families (
TANF) program should be countable toward the housing
work requirements and the
TANF and housing work programs should
be closely coordinated.
Specific Work Promotion Policies in Subsidized
Housing
However, housing programs are often more decentralized than
TANF. Also, it is not desirable to evict housing tenants every
time a shortfall in an activity requirement occurs. These differences mean that
the rule of "requiring employment or constructive activities" will need to be
applied somewhat more flexibly in housing than is
TANF. With
this caveat in mind, the following requirements should be established for
able-bodied, non-elderly recipients in Section 8 and public housing.
1.In selecting new able-bodied, non-elderly heads of household for entry
into the Section 8 and public housing programs, priority should be given to
those with the best record of prior employment. Specifically, within those
income ranges currently selected for participation in the housing programs,
priority should be given to those able-bodied applicants that have the strongest
record of prior employment. This rule would mean that housing programs, in
general, would reward work. (The requirement would apply to able-bodied,
non-elderly applicants only; disabled and elderly individuals should be exempt
from this requirement and should not have their participation in housing
programs reduced because the new work requirement.)
2.Able-bodied
non-elderly heads of household who reside in Section 8 and public housing should
be required to engage in employment, supervised job search,
training or community service work for a minimum of 35 hours
per week. The various activities could be combined to meet the 35 hour
requirement. Recipient who had been employed and then lost employment would be
expected to immediately engage in supervised job search,
training or community service; this would create a strong
impetus to regain employment as soon as possible.
3.When undergoing
annual re-certification, residence by current tenants should not be
automatically extended. Instead, able- bodied, non-elderly heads of household
should be placed in a selection pool along with similar new applicants. Priority
in selecting residents for the next year from within this pool should be given
to those applicants with the best record of employment and/or other constructive
activity. It is important to note that this system would not penalize those
cannot find formal employment since they would be given credit for performing
other constructive activity. The system would, however, send the very strong
message that idleness would not be tolerated for able- bodied individuals within
assisted housing.
4.These requirements would result in an increase in
employment among public housing and section 8 tenants. This, in turn, would
result in an increase in rents paid and decrease in costs to the Public Housing
Authority. The PHA's could use the surplus funds generated by the increase in
rents to pay for ancillary services such as day care.
5.PHA's could
contract with other organizations such as local
TANF offices to
help in the implementation of these work rules.
6.These work rules
should be implemented incrementally; the onset of implementation could be
delayed until FY 2004 when the current recession will have fully passed.
Subsidized Housing and Marriage
A second important goal of
welfare reform is to increase healthy, stable marriages.
Today nearly
one third of all American children are born outside marriage, one child every 35
seconds. The collapse of marriage is the principal cause of child poverty and a
host of other social ills. A child raised by a never-married mother is seven
times more likely to live in poverty than a child raised by his biological
parents in an intact marriage. And a child born and raised out-of-wedlock is
1700 percent more likely to become dependent on welfare than is a child raised
by an intact married couple. Overall, nearly 80 percent of long term child
poverty occurs among children from never-married or broken families.
Children of never-married mothers are 24 to 78 percent more likely to
suffer from emotional and behavioral problems when compared to children from two
parent families. Children in single parent homes are more likely to abuse drugs
and more likely to end up in jail; they perform more poorly in reading, spelling
and math, are more likely to repeat grades and eventually to dropout of school.
Finally, children living with non-married mothers are up to 33 times more likely
to suffer from serious physical child abuse than are children with a married
mother and father.
The growth of single parent families has an enormous
impact on government. Indeed, the modern welfare state, as it relates to
children, has grown up largely as a support system for single parenthood. At
present federal and state governments spend some $
150 billion
per year in means-tested aid for single parent families. In subsidized housing,
some 87 percent of the aid to families with children goes to single parent
families.
But the collapse of marriage is not inevitable. In nearly half
of all out-of-wedlock births, the mother is actually cohabiting with the father
at the time of birth. In another 30 percent of cases the mother is romantically
involved with the father although they do not live together. These non-married
fathers, on average, earn around $
17,000 per year; very few
have drug or alcohol problems or are abusers. In most cases, the couples look
favorably on marriage as an institution. Yet, in general, these couples will not
enter into marriage and will not sustain their relationships.
How
Welfare and Housing Programs Discriminate Against Marriage
In many
respects, the failure of millions of low income couples to enter and sustain
marriages is a result of the barriers that the welfare system erects against
marriage. Marriage has eroded and out-of-wedlock childbearing has soared, in
part, because subsidized housing, Temporary Assistance to Needy Families
(
TANF), Food Stamps, Medicaid and other means-tested welfare
programs discriminate against and penalize marriage.
Penalties against
marriage are inherent in the structure of all means-tested aid programs. In
these programs, benefits are incrementally reduced as a recipient's earnings
increase; this is generally termed the benefit reduction or marginal tax rate on
earnings. (For example with a benefit reduction rate of 50 percent, a
beneficiary might be given $
5,000 in aid if annual earnings are
zero, $
2,500 in aid if earnings are $
5,000,
and no aid if earnings are $
10,000.)
While it is widely
recognized that this type of means-tested program discourages work, it is less
commonly understood that means-tested aid also discourages marriage and rewards
single parenthood. Subsidized housing and other means-tested welfare programs
penalize marriage because a single mother will suffer a substantial reduction or
elimination of benefits whenever she marries an employed male. However, if the
couple remains unmarried, the father's earnings will generally not be counted in
determining the mother's welfare benefits and the value of those benefits will
not be cut. As a result, low income couples can maximize their combined income
by remaining unmarried, but will suffer a serious income loss from marrying.
In the case of subsidized housing, the typical single mother receives a
subsidy worth about $
5,000 per year; if she marries (or
cohabits with) a male with earnings, the value of the rent subsidy will be
reduced. The more the male earns the greater the loss of housing aid. If the
mother marries a male with earnings around $
18,000 per year (a
typical sum for unmarried fathers), the housing subsidy will be completely
eliminated. Thus, in general, low income couples can maximize their welfare
income by remaining unmarried.
The anti-marriage incentives implicit in
subsidized housing programs are intensified by the fact that most recipients
receive aid from more than one means-tested program. Each individual
means-tested program (such as
TANF, Food Stamps, housing, or
Medicaid) contains its own anti-marriage incentives; these incentives are
additive and become very severe when multiple programs operate together.
For example: the typical single mother on Temporary Assistance to Needy
Families receives a combined welfare package of various means-tested aid
benefits worth about $
14,000 per year. Suppose this typical
single mother receives welfare benefits worth $
14,000 per year
while the father of her children has a low wage job paying
$
18,000 per year. If the mother and father remain unmarried,
they will have a combined income of $
32,000
($
14,000 from welfare and $
18,000 from
earnings.) However, if the couple marry and live together, the father's earnings
will be counted against the mother's welfare eligibility. Overall, welfare
benefits will be nearly eliminated and the couple's combined income will fall
substantially.
The public is dismayed by the anti-marriage bias of
welfare programs. A 1999 Roper poll found that 56 percent of national adults
found that "welfare programs that encourage single-parent families and teenage
pregnancy" were a "very serious" problem. Another 27 percent found this a
"somewhat serious" problem. Only 4 percent concluded that the problem "not
serious at all".
Public housing officials should recognize that the
existing bias against marriage has extremely harmful long-term consequences for
children and society. The penalties against marriage implicit in current housing
programs should be substantially reduced. This could be accomplished by altering
the treatment of husbands' earnings in determining rents and eligibility.
Housing program rules for married couples with children could be altered so that
the first $
1,000 in a husband's earnings each month would be
ignored or "disregarded" in determining the married couple's eligibility for
subsidized housing, and the couple's monthly rent payment. Under this system, a
single mother could marry without incurring an overwhelming cut in her housing
subsidy.
Conclusion
It is widely recognized within both
political parties that the 1996 welfare reform has been highly successful. But
government housing programs have not been reformed. These programs continue to
operate in the same manner as the pre-reform Aid to Families with Dependent
Children program. In current housing programs, able-bodied individuals are given
benefits, but are not required to work or to undertake activities aimed at
self-sufficiency. This non-demanding and permissive system is harmful to
recipients and to society.
Government housing programs should be
restructured according to the current principles of welfare reform. First,
able-bodied recipients should be required to be fully employed or to undertake
activities leading to employment. Second, healthy marriage should be encouraged
not penalized.
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