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This memorandum was prepared by John Tapogna, Julia Isaacs, and Dorothy Rosenbaum of the Congressional Budget Office's Budget Analysis Division, under the supervision of C.G. Nuckols and Paul Cullinan. Other analysts made important contributions to the memorandum, including Janice Peskin, Karen Smith, and Ralph Smith. Sherwood Kohn edited the manuscript, and Christian Spoor proofread it. Emma Tuerk prepared the memorandum for publication.
Questions about the memorandum or requests for a detailed table of costs,
by provision, may be addressed to John Tapogna (titles I, II, IV, VI, and
IX), Julia Isaacs (titles III and VII-Food Stamps), and Dorothy Rosenbaum
(titles V, VII, and VIII).
INTRODUCTION AND SUMMARY
FEDERAL GOVERNMENT COSTS AND SAVINGS
STATE AND LOCAL GOVERNMENT COSTS
COMPARISON OF CBO AND HHS FEDERAL ESTIMATES
| APPENDIX TABLES | |
| A-l. | Summary of Federal Government Costs of H.R. 4605, the Work and Responsibility Act of 1994: A Preliminary Staff Estimate |
| A-2. | Summary of State and Local Costs of H.R. 4605, the Work and Responsibility Act of 1994: A Preliminary Staff Estimate |
INTRODUCTION AND SUMMARY
The Clinton Administration's welfare reform proposal, the Work and Responsibility Act of 1994, was introduced on June 21,1994, as H.R. 4605 in the House and S. 2224 in the Senate. It was one of more than two dozen proposals introduced in the 103rd Congress to change the Aid to Families with Dependent Children (AFDC) program and its related training and work programs. Several committees held hearings on the bill during the summer of 1994, but the Congress adjourned before taking action on it. Discussion of welfare reform was prominent during the fall political campaigns, and the issue is likely to be a priority of the 104th Congress.
This memorandum presents the Congressional Budget Office's (CBO's) preliminary analysis of the Administration's proposal and the issues surrounding welfare reform. The methodology underlying this estimate will serve as the groundwork for future analyses of other proposals for welfare reform. It incorporates economic and technical assumptions from CBO's February 1994 baseline, so the estimates will change when the baseline is updated in early 1995 to incorporate new information about the economy and the AFDC population.
Provisions in titles I through VIII of the Work and Responsibility Act would expand training and work programs for recipients of Aid to Families with Dependent Children, impose a two-year limit on AFDC benefits for certain young mothers, liberalize the treatment of earnings and resources in calculating benefits for AFDC families, increase child support enforcement efforts, and extend child care subsidies to families whose incomes are near the poverty level Title IX is designed to finance the spending in the first eight titles through a number of spending cuts and revenue measures, including capping expenditures in the AFDC-Emergency Assistance program and reducing welfare payments to legal aliens.
CBO estimates that if the first eight titles of the bill had been enacted by October 1, 1994, they would have increased mandatory federal outlays by $0.2 billion in fiscal year 1995 and $11.8 billion through 1999. The combination of spending cuts and revenue increases in title IX would have amounted to $0.2 billion in 1995 and $6.9 billion over the five-year period. Overall, CBO estimates that the enactment of H.R. 4605 would have generated a net federal cost of $4.8 billion during the 1995-1999 period (see Appendix Table 1). The bill would also authorize an additional $0.1 billion in spending between 1995 and 1999, subject to annual appropriations. CBO estimates that titles I to VIII of H.R. 4605 would have increased state and local government spending by $2.6 billion over the 1995-1999 period (see Appendix Table 2).
Much uncertainty surrounds these estimated fiscal effects. H.R. 4605 gives states considerable flexibility in determining when and how to carry out mandated provisions and leaves the adoption of other key provisions entirely up to the states. CBO assumed that all states would spend sufficient resources to meet the bill's required participation rates for training and work programs. For other provisions, CBO projected states' behavior by examining their interest in pilot programs operated under federal waivers and discussing the provisions with numerous state and local officials. For some provisions, CBO may need to revise its assumptions about state behavior because of changes in the political leadership of many states after the 1994 elections.
Unless specified otherwise in the legislation, CBO assumed that the states would carry out major reforms, including the time limit on benefits, beginning on October 1, 1995. Although some states would not be ready to initiate these programs within one year, other states, which have experimented with similar reforms through federal waivers, could accelerate their application. CBO assumed that the effect would be as if all states carried out the programs on October 1,1995. Given the delay, CBO's estimates represent the costs and savings over the initial four years of the reform.
CBO's estimate of $11.8 billion for the welfare reform proposals in titles I to VIII is higher than the $9.3 billion estimate released by the Department of Health and Human Services (HHS) in June 1994. CBO's estimates of child care and child support enforcement costs, welfare savings, and some other expenses differ from those of HHS.
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