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Last Updated: 5/20/2010
Budget Issue: May Revision: Governor's Proposal to Eliminate CalWORKs. Effective October 1, 2010, this proposal would result in net savings of approximately $1.1 billion beyond earlier proposed reductions.
Program: CalWORKs
Finding or Recommendation: Recommend rejection of the Governor's May Revision proposal to eliminate CalWORKs. CalWORKs is a core program with a history dating back to the 1930s, provides significant federal funds relative to its General Fund cost, and prevents substantial cost shifts to county-funded General Assistance (GA) programs. However, once enhanced funding related to the federal stimulus legislation expires, the Legislature may need to make substantial reductions in 2010-11.
Further Detail

Summary.  The Governor proposes to eliminate the CalWORKs program effective October 1, 2010, resulting in net General Fund savings of approximately $1.1 billion in 2010-11, rising to $1.5 billion in 2011-12.  We recommend rejecting this proposal and postponing any significant reductions to the CalWORKs program until the federal Temporary Assistance for Needy Families (TANF) Emergency Contingency Fund (ECF) expires.  We support sustaining the CalWORKs program because it (1) is a core program with a history dating back to the 1930s, (2) provides the state with significant federal funds relative to its General Fund cost, and (3) prevents a substantial cost shift to county-funded General Assistance (GA) programs.

(Assuming the TANF ECF is continued through the budget year, the General Fund cost to reject the elimination proposal is $1.1 billion.  The additional cost of rejecting the earlier proposals to reduce grants by 15.7 percent, modify child care reimbursement rates, and eliminate benefits for recent legal noncitizens is approximately $0.1 billion.) 

Core Program With Long History.Since the 1930s, CalWORKs, or its federally authorized predecessor program, has provided low–income families with children with cash assistance to meet their basic needs. Following enactment of the 1996 federal welfare reform legislation, the program added a substantial welfare–to–work component, whereby able–bodied adult recipients were provided with child care and/or other training and services so that they could enter the labor force. The cash grants, in combination with Food Stamp benefits, provide families with enough support to stay out of deep poverty (which is defined as 50 percent of the federal poverty level). We note that during the recession in 1991-92, General Fund spending for CalWORKs’ predecessor program was about $3.2 billion (compared to total General Fund spending of $43 billion at that time). 

Generous Federal Funding.  If CalWORKs is eliminated, the state would forego the annual $3.7 billion federal TANF block grant. Moreover, California would forego hundreds of millions of dollars in TANF ECF support. (The ECF provides 80 percent federal financial participation in costs for cash grants, nonrecurring short–term assistance, and subsidized employment which exceed their corresponding costs in 2007.) Although the ECF is scheduled to expire on September 30, 2010, both the President’s budget and the Governor’s budget assume it will be extended for one more year.

Proposal Would Shift Costs to Counties and Elsewhere. Counties are responsible under state law for providing cash assistance to families who are both unable to support themselves and ineligible for other state and federal programs. The elimination of CalWORKs would make most low–income families eligible for county general assistance (GA) programs, potentially resulting in county costs exceeding $1 billion annually. It is not clear how counties would pay for this obligation—particularly in the context of the recession’s hit on counties’ own revenues and the Governor’s other proposals that would be financially detrimental to counties. Counties have no such obligation to provide welfare–to–work services and child care. Absent these services, however, it will be difficult for many families to become self–sufficient and exit county GA programs.

The administration’s proposal would also result in some eligibility determination costs being shifted from CalWORKs to Medi–Cal. The budget plan does not take this into account. We estimate these state costs to be roughly $200 million annually.

Potential for Out-Year Savings.  Given the 80 percent federal funding stream which is likely to exist through October 2011, we believe there is limited General Fund benefit from making substantial CalWORKs reductions during 2010–11. However, once the ECF expires, all savings from CalWORKs reductions accrue to the state General Fund with no loss of federal funds (because the block grant is fixed). Accordingly, given our projections of ongoing deficits, the Legislature may need to make substantial reductions in CalWORKs in 2011–12.