LC M. 175/; I3-"' 31Gb lo; L . 1930?; RTY f‘. §~1 f 1 EL H3 RA RWVAa%‘..§T§§ M22? M 0 Issue Bnef . N0v171989 Va:-- «~_ . ,_Ah 3 3* r L 4:’ A E‘? ~- ..:z..:.’ 1; _; ’,' ‘I_I—‘_r‘ ": it-.., ' 5 kv'n,'!“ r ', QL » ,. _, . . _ 4,»‘._”.{l I‘ 9' :4 . I . nivers issouri olumbia HTmII‘I’riu“Ii mm m um , 010-103940327 HIIHH AID TO FAMILIES WITH DEPENDENT CHILDREN: FY82 BUDGET CUTS ISSUE BRIEF NUMBER IB8lO5l AUTHOR: Burke, Vee Education and Public Welfare Division THE LIBRARY OF CONGRESS CONGRESSIONAL RESEARCH SERVICE MAJOR ISSUES SYSTEM DATE ORIGINATED O3/20/81 DATE UPDATED O5/O7/82 FOR ADDITIONAL INFORMATION CALL 287-5700 0511 CRS- 1 IB8l05l UPDATE-O5/O7/82 ISSUE DEFINITION Congress in 1981 (P.L. 97-35) made ll Aid to Families with Dependent Children (AFDC) changes that the Congressional Budget Office. (CBO)_ in_,late_ January 1982 estimated would cut FY82 IFederal benefit outlays by" 8%, ‘or almost $550 million. This implies companion benefit savings of about $460 million in State and local funds. The Administration earlier estimated that the new law would end AFDC benefits and automatic Medicaid eligibility for more than 400,000 families, 10.5% of the total, and reduce cash aid for another 7.5%. The thrust of the changes is to reduce or end benefits for .families with earnings; for families with a stepparent in the home; and for students beyond high school. Some pending bills would soften the impact of the new AFDC rules, especially those affecting Medicaid eligibility, but President Reagan's FY83 budget recommends more AFDC cost-cutting provisions, most of which would take effect July 1, 1982. These proposals would tighten work rules, make greater use of recipients’ potential other income, impose new categorical eligibility rules. The Administration estimated that they would cut Federal outlays by $166 million in FY82 and $1.2 billion in FY83. For details, see MB82206. The President also has proposed that the Federal Government withdraw completely from AFDC in 1984. BACKGROUND AND POLICY ANALYSIS A major change in AFDC law contained in the Omnibus Budget Reconciliation Act is expected to have no budget impact in FY82. This is the new authority for States to establish community work projects and to require many AFDC recipients to "work off" their grants by participating in one of the projects. This is widely known as "workfare." The Administration said start-up costs would exceed savings in FY82, but precise numbers were not available. In passing FY82 Budget Reconciliation bills, both Houses of, Congress made community WOFK experience programs a State option, rather than a requirement, as the Reagan administration had urged. Further, they authorized other jOb alternatives for AFDC recipients. In his final (FY82) budget, President Carter proposed five changes in AFDC that he estimated would save $406 million in FY82: assume payment of the Earned Income Credit (EIC) for all eligible families; adopt a standard work expense deduction and put a cap on the allowable deduction for child care costs; "adjust" the earnings disregard; permit States to count a portion of the income of a stepparent in determining an AFDC child's eligibility and benefit; and prohibit monthly payments smaller than $10. All had been proposed before, and three had passed the House as provisions of H.R. 4904. President Reagan's Mar. 10 budget contained in all some 21 proposals, including all of the Carter concepts, two in identical form (plus 5 proposals dealing with child support enforcement). However, only ll of the AFDC proposals were credited with FY82 savings in benefit outlays. Congress enacted all but 3 of the 21 March proposals of the Administration after modifying half of them. It also enacted two proposals advanced later by the ‘Administration and tWO initiated by the Senate Finance Committee. Collectively, the AFDC proposals in the final Reagan budget were estimated CRS- 2 IB8lO5l UPDATE-O5/O7/82 by DHHS to have these effects on FY82 outlays: Millions Federal % State-Local maybe s.ass;g‘pa§m.nts i" *s493s“ ~“s;i9éi AFDC administrative costs — 92 - 65 Food stamp benefits +266 0 Medicaid savings N.A. N.A. Net impact on outlays $-762 $-866 After Congress passed the Omnibus Budget Reconciliation Act, completing action on the Administration's AFDC recommendations, DHHS analysts estimated the impacts of the final law. Their October 1981 estimates were that eligibility would be lost by 10.46% of the families enrolled in AFDC and by 9.71% of the program's children and 7.93% of its adults (approximately 408,000 families, more than half of whom had earnings, consisting of about 744,000 children and 278,000 adults). In addition, DHHS estimated that benefits would be lowered for 7.51% of AFDC families, 9.39% of the program's children and 7.79% of its adults (approximately 293,000 families, consisting of about 720,000 children and 273,000 adults). Thus, in all, the Department estimated that almost 18% of AFDC families and 19% of AFDC children would either be dropped from the program or receive lower benefits because of the new law. when the Reagan Administration had advanced its AFDC program in March, a DHHS analysis indicated that 58% of the families who would lose all or some of their AFDC benefit dollars then had combined AFDC, wage, and food stamp income above the poverty threshold. DHHS analysts said in, March that the recommended changes were expected to increase the number of families with cash and food stamp income below the poverty line by about 66,000. It should be noted that provisions that decrease AFDC cash benefits to a family will cause a rise in their food stamp benefits, at the rate of 30 cents per lost AFDC dollar, unless the household's gross income exceeds the food stamp limit, established by P.L. 97-35 at 130% of the poverty level.. Similarly, a drop in AFDC cash will cause an increase in a family's subsidy from the low-rent public housing program or the Section 8 lower-income housing assistance progra, at the general rate of 24 cents per lost AFDC dollar. some 74% of AFDC families were enrolled in the food stamp program, and 15% lived in public housing, as of March 1977. At the same time, provisions that reduce AFDC caseloads by lowering limits for eligibility automatically also decrease Medicaid rolls except in in the 33 jurisdictions with medically needy programs, for which higher income limits are used. Thus, the Carter budget estimated Medicaid savings of $18 million FY82 as a byproduct of AFDC budget proposals. AFDC CHANGES MADE BY P.L. 97-35 The AFDC provisions enacted by Congress in the Omnibus Budget Reconciliation Act of 1981 fall into fives groups: (a) treatment of recipient's earnings, (b) use of other potential income and resources, (c) categorical limits on eligibility, (d) work rules, and (e) other. CRS- 3 IB8lO5l UPDATE-O5/O7/82 Federal benefit savings from the new law were estimated in late summer l982 by CBO as follows: CRS- 4 Treatment of earnings Place time limit on work incentive bonus and limit the expense allowance (items 1 and 2 in detailed account below) _‘ F’ Assume advance payment of EITC (item 4) USE Of other potential income and resources Adopt retrospective accounting and periodic reporting (item 6) Count a portion of stepparents' income (item 7) Require States to recoup over- and underpayments (item 8) Permit food stamps and housing subsidies to be treated as income (item 9) Enact Federal resource limit (lower than limit imposed by prior regulation (item 10) Treat lumpusum payments as income (item 11) Deem part of the income and resources of an immigrant's sponsor as available to an alien (item ll) (cost estimates by DHHS) Categorical eligibility limits End childs' eligibility age at 18 (State. )option for age l9 student deadline) (item l3) Prohibit eligibility for entire family of a striker-(item 14) 5 Prohibit AFDC for pregnant women with no other children until last trimester (item 15) Work rules - Permit States to require work in exchange for an AFDC check (item 17) Total A UPDATE-O5/O7/82 IB8lO5l Millions FY82 FY83 (‘$3741 _‘$3s4 J o 187 108 111 115 110 100 103 15 17 5" ”"5 15 15 100 104 5 5 15 17 o 20 $905 $1,127 ‘CRS- 5 IB8105l UPDATE-O5/O7/82 In late January 1982, CBO issued re—estimates, including the following: Change in work incentive bonus and expense allowance, $137 million saved, down $237 million from the earlier estimate; assumption of advance EITC, $19 million, down $32 million; counting of stepparent income, $154 million,o up- $46 million; permitting States to treat food stamps and housing subsidies pas income, $10 million, down $90 million; ending child's eligibility at age _l8»* (19 at State option), $50 million, down 550 million; and prohibiting AFDC for.- pregnancy until the last timester, $20 million, up $4 million. CBO said the new estimates primarily reflected new judgments about behavioral response to new program rules. Their new estimates assume significant reductions in work effort, and, consequently, lower benefit savings from treatment of earnings. On the other hand, CBO's January estimates assume that fewer families will split because of the new stepparent rule than it first anticipated. Below are the new provisions of law, along with a comparison of prior law: (A) Treatment of earnings States determine maximum benefit levels in the AFDC program,( which =now provides some $13.2 billion yearly (December 1981 rate) to more than 7 million children (and their needy caretakers), who are needy because one of their parents is absent, incapacitated, or, in 23 jurisdictions, unemployed or underemployed. However, the Federal Government, which pays almost 55% of the national bill for AFDC benefits, determines how sharply States can reduce benefits for recipients who go to work. Before the Reconciliation Act, the law required States (a) to disregard a portion of a recipient's earnings (the first $30 earned monthly plus one-third of the rest) as a financial work reward and (b) to reimburse the recipient's taxes and other expenses. Thus, the rate at which earnings reduce AFDC benefits (the marginal benefit-reduction rate,- analogous to a marginal tax rate) was 67% of each extra gross wage dollar, minus taxes and other expenses. If taxes and other expenses took 15% of extra earnings, the marginal benefit-reduction rate dropped to 52%. Recipients usually could not work their way completely off AFDC until their gross earnings were double or more their State's maximum benefit level, the guarantee paid to the penniless. The actual exit point depended on the size of work expenses and ,,the State's AFDC payment standard (equal to the maximum benefit level, except in four States). The law did not define or limit what might reasonably be considered a work-related expense, and State practices varied. The U.s. Supreme Court (Shea v. Vialpando, 1974) held that States could not adopt a standard work expense allowance unless they made provision for actual expenses that exceed the standard. In the Omnibus Budget Reconciliation Act, Congress altered AFDC rules for those with earnings by placing a time limit on the work incentive bonus and dollar limits on the work expense allowance, by establishing a gross income limit for eligibility, by requiring States to assume that eligible parents receive advance payments of the Earned Income Tax Credit (EITC), and by disallowing benefit payments unless the entitlement were at least $10 monthly. 1). Work incentive bonus. As recommended by the Reagan Administration, Congress voted to limit the duration of the work incentive bonus (disregard CRS- 6 IB8lO5l UPDATE-O5/O7/82 of the first $30 monthly in earnings plus one-third of the rest) to the first 4 months of a job. In addition, both House and Senate accepted an additional rule, included in the Administration's May 6 AFDC bill (H.R. 3468), t require a former AFDC family to wait 12 months before re-establishing eligiblity. for the $30. and one-third earnings disregard. inm benefit) calculation.‘ 2). Work expense allowance. The Reagan Administration proposed to cap the child care deduction at $50 per child monthly, to standardize the deduction for other work-related expenses at $75, both prorated for less than full-time work, and to deduct these sums before the work incentive bonus (a reversal of then-current law), thus reducing the size of the residual one-third disregard by basing it on net rather than gross earnings. The Carter Administration's FY82 budget also had proposed to standardize the work expense, cap the child care expense deduction, and "adjust" the earnings disregardi ($30 and one—third bonus), but it offered no elaboration. (See chronology below for long history of attempts to revise these provisions of AFDC law.) In passing their FY82 Budget Reconciliation bills, both Houses of Congress adopted the Reagan formula for :treatment of earnings, .with this changer proposed by the Finance Committee: cap the child care expense disregard at $160 per month per child, rather than $50, as the Administration proposed. (The Ways and Means Committee had recommended a more generous work incentive bonus and higher allowances for expenses, including child care costs.) CBO estimated FY82 Federal benefit savings from these changes in the work expense allowance and work incentive bonus at $374 million (later revised to $156 million). 3). Gross income limit. Congress accepted the Reagan Administration's proposal to establish a gross income ceiling for AFDC eligibility. In passing their FY82 Budget Reconciliation bills, both Houses adopted the ceiling proposed by the Administration, namely, 150% of a state's need standard. The standard of need, which is set by each State, is used to determine initial financial eligibility. Families with net income above the standard are deemed to be non-needy. However, in all but three States (Alaska, Idaho, Vermont) the Nov. 1, 1981 need standard for a family of three was below the U.S. Census Bureau's 1980 poverty threshold of $548 per month (the range among States was from $168 in Texas to $751 in Vermont). Further, in more than one-half of the States the new law's gross income limit also .is below the poverty level. The Ways and Means Committee had recommended a generally higher gross income ceiling, either the poverty level, or, at State option, 200% Of the State standard Of need. (It should be noted that the maximum AFDC payments of 24 States, the sums paid to families with zero countable income, are below the States‘ own standards of need.) As noted earlier, under previous law the earned income limit for continued AFDC eligibility depended on the State's payment standard and the level of "reasonable" work expenses, as determined by the State. The purpose of the permanent work incentive bonus and the unlimited work expense deduction was to encourage recipients to decrease their dependence on AFDC. One result, however, was that many recipients could not earn enough to reach the AFDC exit point. DHHS estimated that about 20,000 AFDC families had more than $9,300 yearly in earnings, of which about 800 had earnings above $14,500 and about 200 above $18,000. DHHS estimated that an income ceiling at 150% of the State's need standard CRS- 7 IB8lO5l UPDATE-O5/O7/82 would remove 7,000 families from AFDC rolls and save $2 million in FY82 Federal administrative costs. Savings in benefit outlays were estimated as negligible, as benefits are assumed small for these working families. 1The gross income ceiling on eligibility at 150% of "need" will operate to+’ prevent full use of the $30 plus one-third work bonus by families‘ ofc three during the first 4 months of a job in 29 States (based on July 1, ‘198l —need standards and payment standards)x—'i ~' 6 i~ “A I As the following examples show,_ the Reconciliation Act's gross income ceiling sharply reduces earned income limits for AFDC. Gross Annual Earnings Limits, Family of Four P.L. 97-35 Previous law(a) (First 4 months of job)(b) % decrease (July 1981) (July 1981) California ‘ _$l5,967 . $10,818 J _32_ Florida 6,4293 4,1403 36 3Illinois 9,977 6,624(C) 34 Iowa 1 11,288 7,542 33 New York City 13,937 ‘ 9,396 33 (a) Calculations assume child care and other work expense deductions equal to 20% of gross wages, and take no account of the Earned Income Tax Credit (available to those with gross earnings below $10,000). (b) All represent 150% of the State's needs standard, a ceiling that prevents full use of disregards. (c) Illinois later raised its need standard, but not payment standard. Thus, as of November 1981, its gross income limit for a family of four in the first 4 months of a job was $9,804, reflecting full use of the $30 and one-third transitional earnings disregard. After the first 4 months on a job, under the new law, only child care expenses and work—related expenses within permitted limits can be deducted from earnings charged against the grant. As a result, in most States a four-person family cannot remain eligible for an AFDC supplement if it has a full-time minimum wage job, even though such a family would be in poverty. However, such working poor families would be eligible for food stamps if their assets were low, since their annual earnings would fall $1,442 short of their poverty threshold. By November 1981, the second month of effect of the gross income limit, four States had raised their need standards (and thus the gross income outer limit allowed by Federal law), but not their actual payment levels. They were Alabama, Georgia, Illinois, and North Carolina. 4). Earned income tax credit. Congress accepted the Reagan Administration proposal, which also had been a provision of the Carter 1979 AFDC bill, to assume that an eligible AFDC parent receives advance payments of the Earned CRS- 8 IB8l05l UPDATE-O5/O7/82 Income Tax Credit (EITC), regardless of whether or not he has applied for it. The Earned Income Tax Credit (EITC) supplements earnings of low-incomr parents by providing tax credits or rebates through the income tax. system. The credit equals 10% of earnings up to annual earnings, of $5,000“ (maximumF credit, $500 per year) and reduces the credit by 12.5% for {earnings aboves- $6,000. Eligible workers may choose to receive EITC in the form of) advanced, payments added to their paychecks, rather than waiting until the end of the year to apply for a rebate. The 96th Congress (P.L. 96-222) changed the law to require that the EITC, whether received as an advance payment monthly, or in a lump sum at year's end, must be treated by AFDC as earned income.’ The law forbids disregarding it or treating the lump sum as an addition to resources.n I A it ' « The Administration said AFDC recipients should be required to take advantage of all nonwelfare sources of income available to them and that the proposal would eliminate the possibility that some recipients might not have the EITC counted at all, presumably be receiving it as a lump sum refund too big to be fully subtracted from the monthly grant. (Another Administration proposal, enacted in P.L. 97+35, requires that lumpsum payments, be. treatedK as earned income both in the month when received and in subsequent months). CBO estimated that this change would reduce FY82 AFDC Federal benefit outlays by $51 million (later revised to $19 million). 6). $10 minimum payment. Congress accepted the recommendation of the Reagan Administration, which also had appeared in the final Carter budget, to prohibit payment of AFDC monthly benefits smaller than $10. States set maximum AFDC benefits (guarantees) but under the law before Reconciliation most paid recipients the amount of benefit, no matter how small, to which the State schedule entitled them. ' The House voted in June l97l (Family Assistance Plan, H.R. l) and in November 1979 (H.R. 4904) to bar monthly payments smaller than $l0.as a way of reducing administrative and benefit costs. In its H.R. 4904 form, the provision specified that Medicaid eligibility would be preserved for AFDC families whose cash entitlement dropped below $10; and the Mar. 10 Reagan budget provided that those who lose AFDC cash because of this rule would be considered AFDC recipients for all other purposes, including Medicaid eligibility. However, a policy of preserving Medicaid eligibility for such non-cash recipients would require welfare departments to maintain income records for former AFDC families. DHHS said 7,000 families would not receive AFDC payments because of the proposed $10 minimum and that benefit outlay savings would be negligible. (B) Use of other potential income and resources Several AFDC changes made by Congress fall into thiS category: retrospective accounting and periodic reporting; stepparents' income;' recoupment; treatement Of fOOd stamps and housing subsidies as income; Federal outer limit OD resources; and lump-sum income. 6). Retrospective accounting and periodic reporting. Congress accepted the Reagan Administration's proposal, which also was made by President Carter, to base benfits on circumstances in a past month (retrospective CRS- 9 IB8lO5l, UPDATE-O5/O7/82 accounting) except in the month of application and to require periodic income reporting. The recommendations followed an experiment in Denver, Colorado, which concluded that monthly income reporting and retrospective accounting reduced erroneous payments significantly. The proposal was repeated in some subsequent presidential budgets and adopted by the House in November l979v.asT* a provision of H.R. 4904. Before) Reconciliation, the law permitted a State to choose either prospective or retrospective budgeting for AFDC. Regulations adopted in May 1979 required States to specify which method they use and to follow special rules for retrospective systems. As of March 1981, 18 States required monthly income reports from all AFDC recipients with earned income and/or work histories. Of these, States, 12 had adopted retrospective accounting. States with retrospective accounting are: Arizona, California, Idaho, Illinois, Kansas, Michigan, Montana, North Dakota, Oregon,. South Dakota,« Washington, and Wyoming (plus parts of Colorado). CBO said that net savings from this proposal would commence in FY83 and estimated them that year at $l87 million. 7). (Count I stepparents':» income.('( Congress Iaccepted A the. nReagan Administration's recommendation that States be required to count a portion of a stepparent's income as available for needs of his AFDC stepchild. However, it rejected a related proposal, that States also count a portion of the income of any non—AFDC recipient who lives with an AFDC family. CBO estimated that the new stepparent rule would save $108 million in Federal AFDC benefit payments in FY82 (estimate later was revised to $154 million). In general, the new rule provides that some of the stepparent's income must be reserved for support of his own income tax dependents, for payments or alimony or child support, and for work expenses. Under prior law, the U.S. Supreme Court had ruled that a State could not treat a stepparent's income as available to an AFDC child unless (1) that State made all stepparents financially responsible for their stepchildren, or (2) there was evidence that the stepparent contributed to the child's support. As of February 1981, the Department of Health and Human Services held that the stepparent responsibility laws of five States qualified them to treat income of an AFDC stepparent as potentially available to the AFDC child. These States were Nebraska, New Hampshire, South Dakota, Utah, and Washington. A DHHS official said the Department's legal office disputed the claims of four other States that their stepparent laws also were of general application: Iowa, Oregon, Missouri, and Virginia. Presidents Reagan, Carter, and Ford all proposed inclusion of a stepparent's income in determining an AFDC child's need, but Mr. Carter recommended that this be a State option rather than a Federal requirement. The purpose of the new rule is to reduce or end AFDC benefits for children of non-needy stepparents. 8). Recoupment. After modification by the Senate Finance Committee, Congress accepted a Mar. 10, 1981 recommendation of the Reagan Administration to require States to recoup AFDC overpayments and correct underpayments. The committee change, which later was recommended also by the Administration in its AFDC bill, H.R. 3468, prohibits recovery of overpayments in any month when the AFDC payment plus "liquid resources and all income" fail to equal at CRS-l0 IB8lO5l UPDATE-O5/O7/B2 least 90% of the payment the family would receive if its gross earnings were counted. CBO estimated that this new rule would save $115 million. in Federal benefit outlays in. FY82, and- DHHS saidj it would entail“‘ negligible administrative cost. Regulations issued under previous law give States the ’OptiOn' t0“ recoup overpayments, and 42 States have a recovery policy, according to DHHS. Of these, 30 recover from the AFDC grant when possible. However, the U.S. Supreme Court has held that recovery of overpayments cannot be made from a recipient who did not willfully withhold information unless she has income other than the AFDC grant fromfwhichmto collect the sum. 2 ’ «DHHS has reported that 9.2% of AFDC payments made from October 1979 through March 1980 represented overpayments and payments to ineligibles. In the same period, the underpayment rate was 0.9%. AFDC benefits in those 6 months totaled about $5.8 billion. '9). Treatment of food stamps and housing subsidies: as. income.~ Vcongressgf accepted a Reagan Administration recommendation to explicitly permit Statesi to treat food stamps and housing subsidies as income available to meet needs of AFDC families. CBO (and DHSS) estimated that Federal AFDC benefit outlays in FY82 would drop by $1002 million as a result’ (later revised to $10 million). DHHS said the change would have "negligible" administrativep cost but would increase food stamp benefits by an estimated $37 million. The new rule overrides a provision Of fOOd stamp law that prohibits any Federal or State benefit program to treat food stamps as income. Despite this provision, all States have been free to consider the availability of food stamps in setting AFDC benefit levels, and some have done so. Also, some have made allowance for rent as paid, up t0 a maximum. . 10). Outer resource limit. Congress accepted a Reagan Administration proposal to place a limit on allowable resources of $l,000 per family in eguity value, and to exempt from consideration a home owned and occupied by the family and one motor vehicle, provided that the DHHS Secretary might establish a limit to the family's "ownership interest" in an auto. Under the new rules, States remain free to adopt lower limits. Previous law set no Federal resource limit, but Federal regulations issued under that law established an outer limit of $2,000 in counted assets per person ($6,000 for a three-person family) and gave States the option to exclude from counted assets the home, personal effects, automobile, and income-producing property and required States to take a family's resources into account. Actual State practices varied widely. For example, as of Apr. 1, l978, 13 States restricted the value of allowable homes; 2 permitted only old cars. DHHS estimated that this change would remove 16,000 families from AFDC and reduce Federal AFDC benefit outlays by $16 million in FY82, a dollar estimate agreed to by CBO. However, DHHS said it would boost food stamp benefits— by an estimated $6 million. ll). Lump-sum income. Congress accepted a Reagan Administration proposal to require States to consider all lump-sum payments as income available to meet a family's needs. The household would be ineligible for AFDC if a lump-sum payment exceeded the standard of need. Any excess sum in the month when received would be carried forward for later use. CRS-ll IB8lO5l UPDATE-O5/O7/82 Under prior law, according to DHHS, lump—sum payments that met the definition of income, such as retroactive Social Security payments, were counted as income in the month when received, and, if an excess remained, as resources thereafter. DHHS estimated that the proposal would remove 5,000 families from ,AFDC, reducing Federal AFDC benefit outlays by $50 millionl in FY82 “(an *estimate?““ accepted by CBO) and yielding negligible administrative savings. However, it would boost food stamp benefits by an estimated $2 million. 12). Aliens’ income test. Congress accepted a Reagan Administration proposal, included in the Administration's bill, H.R. 3486, pbut first advanced in the Ways and Means Committee bill, to provide that for purposes of AFDC eligiblity for a legally admitted alien, a specified portion of the income of the alienis sponsor would be deemed available for his support for a“ period of 3 years after entry into the United States. DHSS estimated FY82 Federal benefit savings from this provision at $15 million. (C).«Categorical incomeeIimitsJ* 13). Age limit. Congress accepted a Reagan Administration proposal to end a child’s eligibility for AFDC on his 18th birthday unless his State chose to extend the limit through age 18 for those still in secondary school. CBO estimated the FY82 Federal benefit savings from this provision at $100 million (up $35 million from the estimate of DHHS), but CBO later revised its estimate to $50 million. The Administration estimated that the proposal would remove up to 25,000 families from AFDC and up to 75,000 children from the grants of families who continue to receive aid on behalf of younger children. 0 ‘ 14). Ban on AFDC for strikers. Congress enacted a Reagan Administration proposal, as drafted in its bill, H.R. 3468, to prohibit AFDC eligibility for the entire family of a caretaker relative who was engaged in a strike on the last day of the month and to reduce the AFDC grant for a family in which another member was on strike, so as not to pay benefits on behalf of the striker. DHHS said its proposal would remove 1,600 families from AFDC rolls and some $5 million in Federal AFDC benefit oulays in FY82, a savings “estimate accepted by CBO. Under prior Federal law, strikers were not banned from AFDC. In the AFDC program for Unemployed Parents (AFDC-UP), States had the option of denying benefits to households if the parent's unemployment was caused by participation in a labor dispute. As of Sept. 30, 1979, according to DHHS, l8 of the 27 jurisdictions with AFDC-UP programs permitted benefits for strikers. 15). Unborn children. Congress enacted a Reagan Administration proposal, advanced in the Administration's bill, H.R. 3486, to prohibit AFDC during the first 6 months of pregnancy for a woman whose only child was unborn. This provision was included in FY82 Budget Reconciliation bills of both Houses of Congress after being revised by the Senate Finance Committee to permit Medicaid for such otherwise AFDC-eligible expectant mothers from the time pregnancy was determined. 3 CBO estiamted that this provision would reduce FY82 Federal benefit outlays by $16 million. Under prior law States had the option to extend AFDC to pregnant women with no other children. CRS-l2 IB8l05l UPDATE-05/07/82 l6). Unemployed parent limitation. Congress accepted a Reagan Administration proposal to limit eligibility for AFDC for Unemployed Parents (AFDC-UP) to two-parent families in which the principal earner is unemployed. Negligible savings were expected from this provision. (D). Work rules 17). Workfare. Congress rejected a Reagan Administration proposal to require States to establish community work experience programs in which specified persons would be required to perform work in exchange for their AFDC grant. It voted instead to permit States to set up such "workfare" programs. Start-up costs in the first year were expected to offset savings, but in FY83 AFDC benefit savings from this provision were estimated .at, $20 million by CEO ($17 million below the initial estimate of DHHS). (Basic AFDC law requires specified persons deemed employable to register with the Work Incentive Program (WIN) for employment and training, and for up, to 8 weeks of job search per year. ‘The law prescribes these vpenalties .for“ refusal to participate in WIN or to accept an appropriate job, after a counseling period: (1) loss of AFDC for the entire family if the recalcitrant person is the second parent in the home and unemployed; (2) loss of AFDC for the offender, with AFDC payments continued for the child or children, but made to another person on their behalf, if the non-worker ‘is the only able-bodied parent in the home. Regulations issued under prior law prohibited States from establishing any programs that would require an AFDC recipient to work in exchange for her welfare check. The new law permits workfare for all persons except those who are under 16 (under 19 if attending high school) or over 65; disabled; employed full-time; or caring for a child under 3 (or under 6, if suitable child’ care is unavailable). Before Reconciliation, the law exempted from WIN registration children who were under 16 or attending school full—time, and persons who were "of advanced age," disabled, employed not less than 30 hours a week or caring for a child under 6. As of Feb. 26, 1982," three States (North Dakota, Oklahoma and West Virginia) had established Community Work Experience Programs (CWEP); Utah already had a similar program, established under a special HHS ruling some years ago. Five States planned to set up CWEP as part of a demonstration program: Michigan, New York, North Carolina, Ohio and South Dakota. The Department noted that the WIN unassigned pool in March 1981 held 800,000 recipients. of 3.5 million AFDC families surveyed in March 1977, 2.2 million had no child below age 3. ’ l8). WIN alternatives. Congress accepted a Senate Finance Committee proposal to authorize States to establish 3-year demonstration projects of their own design as an alternative to the Work Incentive (WIN) program, in which program components could be varied by region or political subdivision and earnings from which would not make a family ineligible for AFDC supplementation. ‘ Under this provision, not later than 60 days after enactment (thus, not later than Oct. l2, 1981) the governor of a State wishing to conduct a CRS-l3 IB8lO5l UPDATE-O5/O7/82 demonstration must submit a letter of application to the Secretary of HHS. Such program must be operated by the State welfare agency and must use WIN participation criteria. As of Oct. 19, l98l, 21 States had made application for WIN alternative projects. 19). Jobs as an AFDC alternative. Congress accepted a Senate Finance Committee proposal to authorize States- to ~establish* “work 'supplementation“ programs" in which jobs would be provided as an alternative to AFDC. In the work supplementation program, States would be permitted to reduce AFDC grants, use the savings to make jobs available directly or through subsidy and then offer recipients a choice between a job or the lower AFDC grant. The Finance Committee report noted that under this plan modifications "might be needed" to adjust for offsetting increases in food stamp entitlement caused by the reduction in cash aid and, thus, provide that States could reduce or eliminate the earnings disregard otherwise required by law (item 2) to further the purposes of the work supplementation program. 20).~ Work requirement for caretakers. Congress accepted a l»Reagan Administration proposal, included in its bill, H.R. 3468, specifying that to be exempt from the work registration requirement, the caretaker relative. of’ child under 6 must give "personal" care to the child and be absent from him only very briefly or infrequently. At the same time it enacted a related Administration proposal to limit the exemption from mandatory work registration otherwise applicable to AFDC children on their l6th birthday to full-time students who attend elementary, secondary, vocational, or technical schools, but 333 college. These new rules are intended to bar young AFDC parents from attending college. Prior law permitted a yound AFDC parent to attend college, exempting her from the WIN work registration rule, on the theory that full-time schooling increases earning capacity. (B). Other provisions 2l). Vendor payments. Congress enacted a Reagan Administration proposal, as drafted in its May 6 AFDC bill, to remove the limit on the Proportion of AFDC cases in which the family's AFDC grant could be paid to someone other than the child's caretaker relative (vendor or protective payments) and to permit such restricted payments without a finding of mismanagement of funds. Prior law limited restricted payments (such as direct payments by the welfare agency for houfing) to one-sixth of the total AFDC caseload in a State (the actual limit was expressed as 20% of the number of other AFDC cases) and disallowed vendor payments upon request of the AFDC family, unless the family was found to have minmanaged funds. This provision has no budgetary impact. 22). Federal matching rate for training. Congress enacted a Reagan Administration proposal to reduce the Federal matching rate for training expenses from 75% to 50%, the rate applicable to other AFDC administrative expenses. CBO estimated that this provision would reduce Federal FY82 outlays by $16 million ($5 million less than the original estimate of DHHS), but increase State and local outlays by an equal amount. Congress rejected three Reagan Administration AFDC proposals: to \ ve States explicit permission in Federal law to place liens on homes for va \e in excess of the average home in the State; to establish a national recipi« t file to which all States would have access; and to make information regardi * AFDC applicants and recipients accessible to any Government agency to car; CRS-14 I IB8lO5l UPDATE-05/07/82,- out its public duties.. Neither House of Congress accepted these provisions. DHHS estimated that the national recipient file would increase FY82 AFDC Federal oulays by $1 million (and that the cost would rise to $10 million bj FY86). It estimated only negligible savings from the other provisions. Under current policy, liens are permitted at State discretion, and in amounts~ set by them. As of Apr. 1, 1978, 10 States had provisions for recovery of AFDC from assets of recipients.in CHILD SUPPORT_PROVISIONS P.L. 97-35 also contains child support enforcement provisions to: require the Internal Revenue Service to withhold from tax refunds; amountsi that‘ represent past-due support obligations assigned to a State as a condition of AFDC eligibility; authorize collection of alimony on behalf of an AFDC child's parents if she herself is an AFDC recipient and lives with the Child, and permit collection of obligations established by administrative order as well as by court order; require States to charge a fee equal to 10%. of »the% support collected for a non-AFDC family, charging the fee against the absent parent; reinstate a provision of the social Securitye Act .declaring._that ya; child support) obligation assigned ‘to "a istate. as ‘a condition of iAFDC' eligibility is not discharged in bankruptcy; and a provision first adopted by the House Ways and Means Committee in its bill, H.R. 3982), collect past-due child support obligations from the unemployment benefits or trade adjustment benefits of a delinquent parent. LEGISLATION P.L. 97-35. H.R. 3982 Omnibus Budget Reconciliation Act of 1981. Introduced June 19, 1981 as H.R. 3982 (Jones), a clean bill replacing H.R. 3964 on behalf of the Budget Committee. After being amended (Latta amendments): Passed House June 26. Conference report passed both Houses on July 31. Signed into law Aug. 13, 1981. This new law reduces AFDC and child support enforcement expenditures of the Federal Government by almost $550 million in FY82 (CBO estimate, January 1982). Provisions are described in the body of IB81051. H.R. 268 (Albosta) Requires each State to establish a "jobfare" program and to require participation therein by recipients of AFDC, food stamps, and public housing benefits as a condition of State eligibility for Federal funding. Introduced Jan. 5, 1981; referred to Committees on Agriculture; Banking, Finance, and Urban Affairs; Education and Labor; and Ways and Means. Similar bills: H.R. 269 (Findley et al.), introduced also on Jan. 5, 1981; and H.R. 971 (Guyer), introduced Jan. 20, 1981. H.R. 1432 (Petri) Expands the AFDC work requirement by requiring mothers with no child younger than 3 to register with WIN. Introduced Jan. 28, 1981; referred qto committee on Ways and Means. .(First introduced in the 96th Congress). H.R. 2429 (Solomon) Substitutes block grants for open—ended Federal matching in AFDC and authorizes a 5-year demonstration project in which eight States could require work as a condition of eligibility. Introduced Mar. 10, 1981; referred to CRS-15 IB8lO5l UPDATE-O5/O7/82 Committee on Ways and Means. H.R. 3004 (Rousselot et al.) AFDC. Family Welfare Improvement Act. Converts AFDC into a block grant program, providing States their base period (FY79) Federal AFDC dollars‘ plus a share (based on population) of $1 billion, plus, for the 15 States with; lowest benefits, a share of $400 million, the latter conditioned upon raising- benefits. BlOCk grant amounts would be adjusted for changes in the Consumer Price Index (CPI), (population shifts, and high unemployment. Permits spending of block grant funds for "social welfare purposes" other than AFDC benefits. Authorizes States to impose work requirements as a condition of AFDC eligibility. Establishes, in 10 States, a 5-year pilot test of States‘ ability to develop alternate welfare programs free of all AFDC rules.“ Introduced Apr. 2, 1981; referred to Committee on ways and Means. (First introduced, in somewhat different form, in the 96th Congress.) H.R. 4771 (Traxler) AFDC. Permits AFDC payments in the form of housing vouchers for shelter and related expenses. Introduced Oct. 15, 1981; referred, to Committee .on, ways and Means. Reported, amended, July 12, 1981 (H.Rept. 97-143, Part 1). H.R. 4985 (siljander) Comprehensive AFDC Improvements Act of 1981 -- Part I. Reduces AFDC benefits payable to working recipients by lowering the work expense deduction and repealing the disregard of a child's earnings; requires States to count as income a family's food stamp benefits and any housing or rent subsidy; makes ineligible persons who dispose of assets that would put them over the eligibility limit for less than fair market value, in preceding l2 months; prohibits AFDC for an unborn child; makes an absent parent liable for administrative costs of child support collection from him; requires States to impose liens on homes of AFDC families. Various other provisions. Introduced Nov. l6, 1981; referred to Committee on Ways and Means. See also H.R. 4986. H.R. 4986 (Siljander) Comprehensive AFDC Improvements Act of l98l -- Part II. Reduces the child care expense deduction for working recipients; prohibits eligibility for those whose gross earnings exceed 100% of the State need standard; prohibits AFDC for non-citizens, for mothers‘ AFDC for a non-citizen, for a parent separated from his spouse but living "in a sexual relationship" with another person, for a mother who fails a test in English (unless enrolled in an approved English class); prohibits payments smaller than $25 monthly; requires high school students to work at least half time once they reach age 16 in order to continue receiving AFDC; requires unemployed fathers to submit at least 15 letters of job rejections from potential employers each week in order to receive benefits. Introduced Nov. 16, 1981; referred to Committee on Ways and Means. H.R. 5199 (Waxman et al.) AFDC and Medicaid. Medicaid Work Incentive Amendments of l981. Permits States to provide Medicaid to families made ineligible for AFDC cash by the new rules of P.L. 97-35 concerning treatment of earnings and by its gross income limit. Introduced Dec. 11, 1981; referred to Committee on Energy and Commerce. H.R. 5226 (Gradison) CRS-16 _ IB8lO5l UPDATE-O5/O7/82 AFDC and Medicaid. Authorizes States to use AFDC matching funds to make private health insurance "reasonably available" to AFDC families whose income disqualifies them for cash aid and, as- a consequence, for Medicaid. Introduced Dec. 15, 1981; referred to Committee on Ways and Means. I ' H.R. 5791 (Ford of Tennessee)ad W A AFDC, Energy Assistance, and Social Services. Public Assistance Amendments of 1982. Restores permanent but revised work incentive bonus toy AFDC (disregard Of one-third Of earnings left after subtraction Of dependent care cost allowance and an increased allowance for work expenses). Raises. AFDC gross earnings limit to 125% of State need standard plus $219 plus 125% Of Child care COStS. A150 increases annual allotments fdf Title XX: socia1*‘ services and authorizations for appropriations for low-income energy assistance. Introduced Mar. 10, 1982; referred jointly to Committees on Ways and Means, and Energy and Commerce. See also S. 641 and S. 1762. Hearing held Mar. 25, 1982. S. 641 (Inouye) Authorizes each State to establishw standard work expense deductions, . which may vary by locality; provides also for disregard aof a standard $70’ monthly from remaining income, and for 20.5% of that remainder. Prohibits these disregards for persons in community work experience programs or public service employment under WIN. Introduced Mar. 6, 1981; referred to Committee on Finance. See also H.R. 5791. S. 660 (Boren) Family Welfare Demonstration Program Act. Establishes a period of 5 years during which States could either continue under AFDC or elect to conduct a block-grant demonstration project subject to only one Federal rule, namely, that they provide help which they feel will most effectively benefit and promote the social welfare of children and families with children. Introduced Mar. 10, 1981; referred to Committee on Finance. First introduced in the 96th Congress. 6 S. 718 (Proxmire) Requires States to require AFDC recipients to participate in community work programs "if they are abled to do so." Introduced Mar. 17, 1981; referred to Committee on Finance. S. 1377 (Domenici) Omnibus Reconciliation Act of 1981, as proposed by the Budget Committee. Introduced June 17, 1981. Passed Senate June 25. Conference report passed both Houses on July 31. S. 1762 (Moynihan) AFDC. Reinstates a permanent but revised work incentive bonus into AFDC, providing that after the first 4 months on a job, the bonus would drop from $30 plus one-third of remaining earnings to $30 plus one—fifth~ of earnings (instead of being eliminated). Introduced Oct. 22, 1981; referred to Committee on Finance. . S. 2437 (wallop) Child Support. Amends AFDC law and the income tax code to establish a child support tax on absent parents. Introduced Apr. 21, 1982; referred to Committee on Finance. S.Res. WIN. ggshould be enacted to restore full funding of WIN- referred to Committee on Appropriations. A " cns-17 IB8lO51 UPDATE-O5/O7/82 325 (Dixon et al.) Expresses the sense Of the Senate that a supplemental appropriation REPORTS AND CONGRESSIONAL DOCUMENTS UOS¢ Congress. House. Omnibus Reconciliation Act of 1981; conference report to accompany H.R. 3982. Book 2. Washington, U.S. Govt. Print. Off., 1981. Y(97th Congress, lst session. 2‘ House. Report no. 97-208) Committee on the Budget. ‘Omnibus report to accompany U.S. GOVt. Print. Off., . House. Report no. 97-158). Congress. House. Reconciliation Act of 1981; H.R. 3982.2 Vol- III. Washington, 1981. (97th Congress, 1st session. "Congress;'iHouse.”‘CommitteeBon*Ways*and*Means.“ Descriptionv” of the Administation's legislative recommendations under the jurisdiction of the ways and Means Committee. Washington, U.S. Govt. Print. Off., 1981. 77 p. At head of title: 97th Congress, lst session. Committee print WMCP: 97-5. . «,. _ . Omnibus 1377. Congress. senate. Committee on the Budget. Reconciliation Act of 1981; report to accompany S. Washington, U.S. Govt. Print. Off., 1981. 1,034 p. (97th Congress, lst session. Senate. Report no. 97-139). CHRONOLOGY OF EVENTS 04/21/82 -- The Ways and Means Subcommittee on Public Assistance O3/O2/82 -- 02/08/82 -- concluded hearings on the Administration's FY83 budget proposals and on measures to modify earlier cuts by providing Federal funding for Medicaid to families who lost AFDC eligibility because of new income rules and by restoring the work incentive bonus to AFDC. The Senate Finance Committee and the House Ways and Means Subcommittee, in votes regarding the Mar. 15 budget resolution, failed to act on Reagan's FY83 welfare proposals. The Senate committee committed itself to not increasing the deficit; the House subcommittee said it was assuming continuation of current law spending levels pending study. The President submitted his FY83 budget, recommending additional AFDC cuts in FY82 as well as FY83, new cuts in food stamps and housing aid, plus deliberalization of SST. O2/05/82 —- DHHS published final regulations implementing :pIntroduced.FEb.,25,‘»1982:‘ 01/26/82 01/19/82 09/21/81 08/13/81 07/31/81 06/26/81 06/25/81 05/14/81 05/05/81 01/15/81 04/01/80 CRS-18 IB8lO5l UPDATE-O5/07/82 AFDC changes enacted in 1981 (P.L. 97-35). regulations had been issued Sept. 21, 1981. Interim In his State Of the Union message, President Reagan , proposed, in 1984, a Federal takeover of Medicaid pin exchange for State assumption of AFDC and food stamps. The Ways and Means Committee concluded a series of field hearings on the impact of budget cuts on cash welfare and health programs under its jurisdiction. Hearings were held in Memphis, Baltimore, Indianapolis, Detroit, Sacramento, and Seattle. The Department of Health and Human Services issued interim regulations, generally effective Oct. 1, 1981, to implement changes in AFDC made by the Omnibus Budget Reconciliation Act (P.L. 97-35). President Reagan signed the Omnibus Budget Reconciliation? Act of 1981 into law (P.L. 97-35). House and Senate passed the conference report on the FY82 Omnibus Reconciliation Act, H.R. 3982. The House passed its FY82 Budget Reconciliation bill, after amending it to include AFDC provisions recommended by the Senate Finance Committee and Reagan Administration. The Senate passed its FY82 Budget Reconciliation bill, including versions of all the budget-cutting provisions sought by the Administration. The House Ways and Means public assistance subcommittee completed markup of legislation to satisfy reconciliation instructions in the first concurrent resolution on the FY82 budget of the House. The committee said its bill would cut AFDC FY82 spending by $710 million. The Senate Finance Committee completed markup of legislation to satisfy reconciliation instructions in the revised second concurrent resolution on the FY81 budget in the Senate. The committee said its bill cut AFDC FY82 spending by $928 million. In his FY82 budget, outgoing President Carter proposed to standardize the work expense allowance, adjust the earnings disregard, permit States to count a portion of a child's stepparent as income, bar payments smaller than $10, and revise treatment of the Earned Income Credit (EIC). President Carter signed P.L. 96-222 (H.R. 2797), which provided that advance payments and income tax refunds resulting from EIC must be treated as 01/28/80 11/07/79 l0/29/79 01/22/79 -- 10/10/78 01/20/78 11/04/77 01/17/77 01/21/76 CRS-l9 IB8l05l UPDATE-O5/07/82 earned income in the AFDC and SSI programs. In his FY8l budget, President Carter proposed to standardize the work expense allowance, adjust the earnings disregard, and permit States to count stepparent income. A The House passed H.R. 4904, Social Welfare Reform Amendments of 1979, which included provisions to revise the AFDC earnings disregard and adopt a standard work expense allowance, permit benefit reductions for a child living with a non-needy relative, such as a mother supported by the AFDC child's stepfather; bar payments smaller than $10, and automatically treat advance EIC payments for which AFDC recipients were eligible as part of monthly earned income. In passing H.R. 3434, Adoption Assistance and Child Welfare Act of 1979, the Senate voted to adopt a standard disregard for all families ($70 monthly) lieu of itemizing expenses other than child care, to raise the fractional disregard to 40% of remaining earnings. in and .President Carter's FY80 budget proposed that deductible work expenses other than child care be standardized as a flat percentage of gross earnings, that States be required to adopt retrospective accounting and monthly income reporting, and that States be required to count a stepparent's income. In passing H.R. 13511, Revenue Act of 1978, the Senate amended the bill to revise the earnings‘ disregard thus: Disregard the first $60 monthly plus "reasonable" child care expenses, plus one-third of the rest up to earnings of $300, plus one-fifth of the rest. This proposal was first made by the Senate Finance Committee in 1972 as an amendment to H.R. l and adopted that year by the Senate. President Carter's FY79 budget proposed that deductible work expenses other than child care be standardized as a flat percentage of gross earnings. The Senate amended H.R. 9346, the Social Security Financing Act, to adopt the AFDC earnings disregard formula of the Senate version of H.R. 1 (1972). President Carter's FY78 budget proposed to adopt a standardized work expense disregard "which will establish more uniform eligibility limits." President Ford's FY77 budget proposed to require that stepparent income be counted and to change the earnings disregard thus: Deduct the first $60 monthly plus work-related expenses, plus one-third of the rest. I 02/03 02/04/74 11/30/73 10/05/72 ADDITION Carleson, Levy, CRS-20 IB8l05l UPDATE—05/O7/82 /75 President Ford's FY76 budget proposed to change the disregard as above and to adopt retrospective accounting.‘ [President Nixon's FY75 budget proposed adoption of] the earnings disregard provision of the Senate version of H.R. 1 (1972)- ‘ -- in passing H.R. 3153, the Senate again voted for the income disregard proposal of H.R. 1 (1972). ;InWpassing,B.R. 1, the Senate approved a Finance ,p§mmitteé*p1an to change the AFDC earnings disregard Fthus; iDeduct the first $60 monthly, plus child care costs, one-third of the next $300, and Vone-fifth of the remaining earnings. AL REFERENCE SOURCES The Journal V. 5, No. 2. Robert B. The Reagan welfare reforms. of the Institute for Socioeconomic Studies. Summer 1980, 1-13. Frank. [What Reagan can teach the U.S. about welfare reform. The Urban Institute Policy and Research Report Vol. 10, Vo. 2. Summer 1980. 11-14. Library of Congress. Congressional Research Service. Budget cuts and financial work incentives for welfare recipients [by] Vee Burke. Washington, Mar. 26, 1982. 14 p. CRS white paper. - The impact on welfare families of the Reagan Administration's proposed treatment of earnings (selected cities) [by] Carmen D. Solomon. Washington, 1981. . CRS Report 8l'l36 EPW. Need and payment levels in the program of Aid to Families With Dependent Children (AFDC): legislative history and current State practices [by] Carmen D. Solomon. Washington, 1981. CRS Report 81-149 EPW. Work disincentives in income-tested programs [by] Vee Burke. Washington, 1980. 92 p. CRS Report 80-158 EPW -Z -.g._‘.(_‘& 3'fHfi$r“ «L F VH '7" (“N3 I :3 x_;;:‘p.‘,_‘ fun.’ 7‘ L‘. :?‘:-,u.‘. I,- . ,,,. ,”x,....T'_, 9. l'H’~'x' -we JHHA JEJ 4-.1 9 “<3 , ‘._.-’ ;‘*- ,'2-’!_1'».‘.‘HW ‘“.,"._I . *--=1. . (- ‘ 5.“ I ,~n,.~ . . E no»? r. {v.._!__:i_‘7r',[i3 _ l\.}D -flue-.._,§____ 1‘ 5 - ' _ 4-n.-.-._ . . _‘_