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Remarks by Donna E. Shalala

American Enterprise Institute
February 6, 1998
Washington, D.C.

I want to thank Doug Besharov and the American Enterprise Institute for this invitation. I’m pleased to join all of you to talk about social policy.

As the President noted in his State of the Union address, "a society rooted in responsibility must first promote the value of work, not welfare." That’s exactly what our Administration has been trying to do for over five years – supporting work and working families. We’ve been doing it through solid economic and social policies.

By early indications – such as the reduction in caseloads – welfare reform has had some important successes. Those successes create this challenge: to make sure the caseload reduction is accompanied by job stability and improvements in the quality of life for our poorest families. It’s clear that our six-decade-old approach to welfare is almost over. What began in the 1930s with the best of intentions ultimately inspired neither hope nor responsibility.

The early welfare waivers – combined with the new welfare law – have been in place for enough years to start evaluating their strengths and weaknesses, and to ask tough questions about where we need to go from here. But we also have a moral obligation to keep making improvements in welfare reform, and in our social policies.

I taught policy in the academy long before I was a policy maker. And like any academic, I know how important it is to put policy in context – to focus on where we are, before making judgments about where we need to go.

The most important context for welfare reform is the tectonic shift in the American political and economic landscape over the last five years.

Today, we understand that government is neither the enemy nor the answer. We are living in an era of a smaller federal government, where states are not just along for the ride, but are often in the driver’s seat. In fact, we have the smallest federal government since President Kennedy was in office. We have achieved a bipartisan consensus that the budget must be balanced. And just this week, the President submitted the first balanced budget in 30 years. Our fiscal house is getting in order.

I just returned from the World Economic Forum in Davos. Our economy is the envy of the world. With good reason. Our economy is actually defying conventional economic theory that says low unemployment will bring growing inflation. In 1998, everything that should be up is up: GDP, home ownership, wages and job creation. And everything that should be down is down: unemployment, inflation, interest rates and the poverty rate.

The fact is, we probably couldn’t ask for a better political and economic landscape in which to build on the initial progress we’ve made in moving people from welfare to work. According to a recent Urban Institute study, the demand for workers is growing by about 2 million a year.

That’s more than enough to accommodate the number of new workers TANF is expected to add to the workforce each year between now and 2002. That’s why the Urban Institute correctly concludes that today’s job growth "has benefited everyone, including the poorest, the least educated and the least skilled."

Many of these new job opportunities are for entry-level positions – which are exactly the kind of openings that new workers need to get started. And many apparently are getting started.

Just two weeks ago we announced that the number of welfare recipients dropped below 10 million for the first time in more than 25 years. And the number has fallen by 4.3 million since President Clinton took office.

In fact, since 1994, the number of recipients has dropped by one-third – with 2 million leaving the rolls just since August 1996, a goal of the President that we reached two years ahead of schedule.

Today, fewer than 4 percent of Americans are on welfare. What we don’t know is precisely what is happening to all of these former welfare recipients. We know that some have married or moved in with family or friends. Others have left the rolls and are holding on to jobs that they were already going to – what is sometimes called the "smoke out effect." But what’s important is that many are looking for work – and finding it.

Obviously, not everyone on welfare has the ability to join the workforce immediately in even an entry-level job. That is why the TANF participation requirements balance a strong emphasis on work with activities that help participants prepare for work – for example, getting their GED. That is why work requirements start slowly, with only 30 percent of welfare recipients required to work just 20 hours a week this year. That is why TANF allows states to exempt 20 percent of their caseload from time limits. And that is why federal grants for job creation, transportation, job training for recipients, and tax credits for employers who hire welfare recipients – all of which are part of our welfare agenda – are so important.

As you know, in last year’s budget we created a $3 billion dollar grant program to help move people from welfare to work. Our new programs and policies have focused on helping welfare recipients find that first employment opportunity, and making sure that the move from welfare to work is permanent. There are two important ways that our new initiatives have provided that particular help.

The first is by building strong local partnerships where government, business, community organizations, transportation providers, the media and religious leaders collaborate to help families move from welfare to work. The second is by making sure that work always pays. As a nation we have every right to demand responsibility. That’s been the President’s message on welfare since day one.

But we must also make sure that work is a better deal than welfare. To make sure work pays: we raised the minimum wage and expanded the Earned Income Tax Credit.

Raising the minimum wage to $5.15 per hour lifted an estimated 300,000 people out of poverty – 100,000 of whom are children. The President wants to raise the minimum wage again. The EITC has been an even more powerful tool – lifting approximately 4 million people out of poverty, and with the minimum wage increases, putting as much as $6000 a year into the hands of a single-parent household with two children. With EITC, working even 20 hours a week can pay better than welfare.

We put tough new child support measures into the new welfare law that are expected to increase collections by $24 billion over the next ten years. But we’re not waiting for those measures to kick in. In 1997, we collected a record $13 billion in support payments, and increase of more than 60 percent since 1992. And last year we created a $500 dollar per child tax credit for working families.

Making work pay means giving parents the confidence that leaving welfare for work will not mean losing their children’s health insurance. Our goal is to ensure that every child in America has good health insurance. That’s why last year, we created the Children’s Health Insurance Program – or CHIP. With an unprecedented $24 billion dollar commitment, CHIP represents our first down payment to make that goal a reality.

This is the largest expansion in health care since we made the promise of Medicare and Medicaid over 30 years ago.

Our children’s health insurance program – like Medicaid – is a true state-federal partnership. We’re giving states three broad options: They can expand their existing Medicaid program to make more children eligible. They can design a private insurance plan. Or they can come up with a plan that will do a combination of both. The point is to help children of working families who are too poor to afford private insurance – while eliminating a historic disincentive for parents on welfare to go to work.

We have a new plan that is part of next year’s budget to help states defray the cost of finding and enrolling children in Medicaid. Under the plan, Medicaid would pay 90 percent of state costs for most outreach activities.

Several weeks ago, we announced another piece of our agenda: a more than $20 billion dollar expansion over five years of child care – once again to help working parents, especially single parents, make it. This is the largest single investment in child care in our nation’s history – and it will allow double the number of children receiving child care subsidies to more than 2-million by 2003. Most working parents ask themselves these three questions about child care: Can I get it? Can I afford it? Can I trust it? But let’s face it, for families trying to make the transition from welfare to work, those questions – especially, can I afford it? – can be deal breakers.

That’s why we’re proposing to increase the child care block grant by $7.5 billion over five years. There is no question that states need the money. They have already obligated over 99 percent of their child care funds under the new welfare law. We’re also proposing to use tax credits to ease the financial burden on 3-million working families who are paying for child care. This credit – worth $5.2 billion dollars over five years – would eliminate the income tax liability for almost all families with incomes below 200 percent of poverty. Businesses, too, would be offered a tax credit – up to $150,000 dollars a year as an incentive to build, operate or pay for child care facilities or services.

To help parents get child care, the President’s proposal includes $800 million dollars over five years to fund school-community partnerships that will set up – or expand – programs for after-school care. Finally, we’re helping parents trust their child care by providing more than $3 billion dollars over five years to improve the quality of care … to train providers … and to help states enforce their own health and safety standards.

The extraordinary drama of changing the economic and social conditions of millions of poor families that we began universally and formally in 1996 is not a play in which the federal government is standing alone at center-stage. This is a partnership in which the leading role now belongs to the states and their communities.

Of course in the years leading up to August 1996, many people already thought of the states as laboratories for change. And that’s why prior to passage of TANF, we granted waivers to 43 states allowing them to experiment with new ways of offering opportunity and demanding responsibility. These experiments were the foundation that states are now building on to help families become self-sufficient.

Today, states have the flexibility to design their welfare programs and use to federal and state funds to help families achieve self-sufficiency. But that state flexibility has to be balanced with state accountability.

To make sure it is, we issued proposed TANF regulations in November. The comment period for these regulations is set to expire February 18th. So you still have a little time to send us your views by letter or e-mail. Let me just summarize the proposed regulations this way: The intention of Congress to have states meet work participation targets is unmistakable. And we have the authority to penalize states that fail to meet their requirements under the law. We take that authority seriously, and we intend to grant exceptions only for compelling reasons.

It’s still too early to make a final assessment of how well the states are performing in their new role under TANF. But we’ve been tracking the progress of the states, and the results certainly demonstrate that we’re on the right track. Here’s what we know.

First, as I already mentioned, caseloads are down dramatically – a decline that has picked up speed since August 1996.

Second, there has been NO race to the bottom in state welfare spending. Although total state spending has declined since 1994, states – on average – are spending somewhat more per recipient than they did in 1994. Perhaps even more important, at least 20 states report that in FY 97, they exceeded their Maintenance of Effort requirements – many by a wide margin. Four states are actually spending more on welfare today than they did before welfare reform – even though their caseloads have fallen.

Third, a majority of states are increasing their earnings disregards. That means they’re raising the amount of earnings that are not counted when determining a recipient’s benefits. This will not only help pull families out of poverty, it will send the message to low wage earners that going to work is a better deal than staying home.

Fourth, states are beginning to turn their welfare offices into employment offices – which is exactly what we want. Almost all states, for example, are using a "Work First" model – requiring recipients to move quickly into available jobs, but also offering referrals to employers and community organizations to make the transition to work easier. And virtually every state is requiring recipients to sign social contracts or other personal responsibility agreements in which the recipients commit themselves to taking specific steps toward self sufficiency.

Fifth, states are working hard to enforce the mandatory work requirements in TANF. Sanctions were actually rising even before TANF. Still, most of the 33 states that were authorized by waivers to impose full-family sanctions rarely did so. Now, when sanctions are imposed, it’s usually because recipients fail to show up for their initial appointments – not because they refuse to comply with work requirements. There is actually some good news in this because it means that many recipients – threatened with work requirements – are pursuing good job opportunities.

In South Carolina and Iowa, for example, about 40 percent of people on welfare who left because of sanctions actually saw their incomes increase. This is consistent with preliminary state data showing that 50 to 60 percent of the people leaving welfare under TANF are working a short time later. Given the very large number of recipients leaving welfare, this certainly suggests many more are becoming wage earners. However, evidence also suggests that even when recipients move to work and improve their incomes, they are still likely to have total incomes below the poverty line.

This is clearly not the end of welfare reform, it is only the beginning. That’s why the President has spoken forcefully about the need for the business community to hire people coming off welfare – and has backed up his words with deeds by offering tax incentives to businesses that hire welfare recipients. That’s why we corrected many of the unfair provisions in the original welfare law that were directed toward legal immigrants – provisions that had nothing to do with welfare reform. And that’s why I come to each of you today with a challenge – to make this historic law work even better.

I would even go so far as to ask you emulate another group of exceptional minds.

About 1800 years ago some Talmudic rabbis were sitting around studying a passage from Deuteronomy that explains what should be done with a stubborn and rebellious son. Deuteronomy’s answer: "All the men of the city shall stone him to death." The rabbis decided two things about this passage. First it was a commandment from God. And second, they would not obey it.

So, just like Congress, they started carving out exceptions. First daughters. Then teenagers. Then sons who didn’t live in Jerusalem. This kept up until one rabbi finally declared: There has never been a stubborn and rebellious son in the House of Israel and there never will be! This confuses one of the younger rabbis who asks, "If there are no stubborn and rebellious sons, why was the law written?" It was written, was told, "so that you may study it and learn wisdom."

That is what we must do – government, universities and private social science research organizations – study welfare reform and learn wisdom, so that we continue to solve the problems we know about – and anticipate the problems yet to come. We need your help to stay not just ahead of the curve – but on the cutting edge.

So, I’m going to offer you six broad questions that I think need careful consideration – and considerable sensitivity and energy.

Number one: If we believe in and value work, our goal must be to help recipients move into jobs and stay there. What is the best way to help recipients – especially those with multiple disadvantages – into jobs? What are the costs and benefits of investing in more intensive interventions with hard to serve families? What are the best supports that will keep all former recipients employed? Reduce turnover and recidivism? And make sure that their first job or second job leads to long term success?

Number two: We want to promote work – and we’re willing to impose sanctions on adults who don’t work. On the other hand, we don’t want to punish children. So we need to research what is happening to the children of recipients who have left the welfare system either voluntarily or because of sanctions or time limits. Are children’s home environment, health, cognitive development and educational achievement being affected? How? And over the long term, are they less likely to end up on welfare themselves? Because one extremely important outcome measure for an impact evaluation is the well-being of children.

Number three: We must have a better understanding of the difference between falling caseloads and the number of people who are leaving welfare for work.

We know that some recipients leave welfare because they change their living circumstances – for example, by getting married or moving in with family or friends. Some already have been working, or leave welfare for new jobs. But we should find out why existing work levels are not higher – and whether additional changes in support services, training, and incentives might raise those levels. Answers to these questions will be crucial as we think about what might happen to low-skilled workers in the next economic downturn. On a related matter: TANF takes into account that some people will probably never be able to work. That means we need to research how programs for this part of the welfare population can be designed in a way that will avoid attracting recipients who can work but choose not to.

Number four: As recipients start to reach time limits, what should we do to beef up our work safety net? How do we go about doing it? And what additional incentives can we provide to make work pay – within the context of a balanced budget?

Number five: Since states are laboratories for change and innovation, what systems can be put in place to help states share information and technology with each other? Give you timely data for additional research? And gain quick access – and make good use – of your analyses and recommendations?

Number six: What is welfare reform doing to the broader measures of positive social change? For example, we already know that adolescent pregnancy rates are down for five years straight. As welfare reform continues, will these positive trends continue – or even improve? What about divorce rates, state marriage rates, illegitimacy rates, paternity establishments and adolescent violence? What is the impact of sanctions, time limits and smaller caseloads on domestic violence, and what kind of preventive action can we take now to make sure that abuse doesn’t increase? And what are the most effective ways of getting businesses to hire welfare recipients? Can strong messages be crafted that will encourage the private sector to really join in this fight? If so, what are they?

The fact is, to continue the progress we’ve made under welfare reform, we need to know more about what works. And no one is in a better position to find out what works – and to give policy makers guidance about what doesn’t work – than you are.

When the President signed welfare reform into law, he made a very strong point that everyone who was opposed to the old system now has an obligation to help make the new system work. Government cannot effectively steer this enormous transition in social welfare policy without a willingness to link arms with advocates, researchers, businesses and front-line workers who bring caring and vigor to this effort. And we certainly shouldn’t have to.

We need your help. You are the experts. You are on the ground listening, watching and documenting how well welfare reform is working in your communities.

You can make sure we continue to make improvements, so that this historic social policy works to improve the quality of life for our families and children. Thank you.

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