CalWORKs

In this section of our report, we discuss (1) federal work participation requirements and how they affect the state’s CalWORKs program, (2) the Governor’s proposals for achieving General Fund savings in CalWORKs, (3) some specific LAO alternatives to the administration’s proposals, and (4) the overall approach to these issues that the Legislature may wish to consider.

Federal Work Participation Rate (WPR) and Penalties

Federal Requirements. Federal law governing the TANF program requires that states meet a WPR of 50 percent, as adjusted to reflect credits for any decline in caseload that has occurred since the 2005 federal fiscal year (FFY). (We discuss this aspect of the CalWORKs program in more detail in the “Background” section of this report.)

There are actually two types of caseload reduction credits (CRCs) provided under federal regulations. The first credit is awarded for the actual decline in a state’s welfare caseload. A second type of CRC is awarded to a state that spends “excess” resources in support of its program above the MOE requirement established for states by the federal government. Specifically, for every $50 million in excess MOE expenditures, California receives a CRC of 0.73 percent. (Please see page C–98 of the Analysis of the 2008–09 Budget Bill for a more extensive discussion of this federal policy and its ramifications for the CalWORKs program.)

Figure 10 presents the administration’s estimate of the net WPR requirements faced by California, after accounting for the credits it is likely to be qualified to receive through FFY 2011. As the figure shows, the net WPR requirement for California is likely to generally increase over the years because the CalWORKs caseload is growing and the state’s MOE–related credits are likely to decrease.

Calculation of WPR. The WPR is determined by dividing the number of cases meeting federal requirements (the numerator) by the number of cases subject to the requirements (the denominator). As discussed later in this Analysis, various policy options impact the numerator and denominator in this calculation. We note that the federal Deficit Reduction Act of 2005 made several changes in the TANF program which had the impact of making it harder for states to meet the WPR. (These changes are discussed in our CalWORKs write–ups in our analyses of the 2007–08 and 2008–09 budget bills.)

Work Participation Penalties for States. If a state fails to meet the required WPRs, it is subject to a penalty of up to a 5 percent reduction of its federal TANF block grant. For each successive year of noncompliance, the penalty increases by 2 percent to a maximum of 21 percent. For California, the 5 percent penalty would be approximately $149 million annually, potentially growing by up to $70 million per year. Penalties are based on the degree of noncompliance. Pursuant to current state law, the state and counties would share in any federal penalty. States out of compliance may enter into corrective action plans which can reduce or eliminate penalties, depending on a state’s progress in meeting the negotiated goals of the corrective plan.

Current Status. For 2007, California achieved a WPR of 22.3 percent, well below the required rate of 40.7 percent (50 percent less the CRCs). Normally, the federal government notifies states of their WPR status about one year after the close of the fiscal year. Accordingly, most states were expecting to receive federal notification of their WPR compliance status for FFY 2007 by September 2008. However, the prior administration did not send the notifications or release the state–by–state WPR results.

Potential Federal Changes Could Ease WPR Issues. Given the fiscal difficulties many states are facing, and the likelihood that Congress and the new federal administration will soon provide a federal relief package for states, it is possible that WPR penalty notifications to states may not be issued by federal authorities for quite some time. It is also possible that federal authorities will make it easier for states to meet WPR requirements. The TANF regulations issued during 2007 and 2008 by the prior administration made it significantly harder for states to meet the WPR, but a change in policy in this area is possible in the new federal administration. (For an extensive discussion of these federal regulations, see the “CalWORKs” chapter of the Analysis of the 2008–09 Budget Bill, page C–100.) Moreover, the federal TANF program is up for reauthorization next year, offering a further opportunity for some relaxation of the states’ WPR obligations. In any event, when and if California is notified that it failed WPR in 2007, the state would have until at least FFY 2010, and probably until FFY 2011, to attain compliance with federal law and regulations through a corrective action plan.

Governor’s CalWORK’s Proposals

The Governor’s 2009–10 spending plan offers seven CalWORKs budget reduction proposals, five of which impact grants and eligibility. Figure 11 summarizes the fiscal, WPR, and eligibility impacts for these proposals. If adopted, total General Fund savings would be about $123 million in 2008–09 and almost $1.1 billion in 2009–10. These proposals would increase the WPR by an estimated 2.1 percent, and would remove over 234,000 children from aid.

We note that because of the TANF MOE requirement described earlier, not all of the $1.1 billion in savings can be achieved in the CalWORKs program. Some of the General Fund savings are achieved by using TANF funds freed up from the proposed program reductions to offset General Fund costs in the Student Aid Commission ($192 million) and the Department of Developmental Services ($24 million). These fund shifts are feasible. The issue of whether to make these fund shifts depends on how deeply the Legislature elects to cut the CalWORKs program. Key features of the Governor’s CalWORKs proposals are described below.

Grant Reduction. The proposed 10 percent grant reduction would reduce the maximum monthly CalWORKs grants by $72 in designated high–cost counties and $69 per month in low–cost counties. Roughly one–third of these grant decreases for recipients would be partially offset by an increase in food stamp benefits. This is because food stamp allotments are based on income, including grant income. Figure 12 shows the current grants and food stamp allotments and how these amounts would change under the Governor’s proposal. The figure also shows how the combined grant and Food Stamps compares to the federal poverty guideline. (We note that under current law, a COLA based on the change in CNI would be granted in July 2009. This COLA would increase the grants by 1.53 percent. However, the Governor proposes to suspend this COLA.)

The administration’s proposed grant reduction would reduce the WPR by 4.5 percent. This is because the grant reduction has the effect of removing about 15,400 aided families who are working sufficient hours to meet federal requirements. (These families are removed from aid because they have incomes that would exceed the new income eligibility limit created by the proposed grant reduction and its interaction with the earned income disregard.)

Modified Safety Net and Child–Only Time Limit. The administration’s modified safety net and child–only time limit proposals both establish a five–year limit on the receipt of CalWORKs assistance for children. (The proposals are unchanged from the Governor’s 2008–09 budget. We provide a more detailed discussion of these proposals in the Analysis of the 2008–09 Budget Bill [please see page C–109].) Currently, children have no time limit for receiving aid, but their parents (if eligible) are generally limited to five years of assistance. The modified safety net policy requires adults who have been on aid for five years to either work sufficient hours to meet the federal WPR, or have their entire family removed from aid. The administration estimates that this policy would increase the WPR by 5.2 percent and result in just over 90,000 children losing their CalWORKs grant. The child–only time limit has no impact on the work participation rate (because the parents are ineligible for assistance and are not subject to the WPR), but results in an estimated 83,400 children being removed from aid.

Self–Sufficiency Reviews. The Governor proposes to condition a recipient’s eligibility for CalWORKs on their attendance at an in–person review with his/her county worker every six months. This requirement would apply to any case that was not meeting work participation requirements (including most child–only cases, which often are not subject to federal participation requirements). The CalWORKs budget assumes that 5 percent of recipients will discontinue aid for failing to comply with this requirement. Based on the 5 percent discontinuance rate, the budget plan estimates that this policy would result in $97 million in savings in 2009–10 from removing about 16,000 families and 30,000 children from aid. It would increase the WPR by about 1.4 percent, due to the removal of these families from the CalWORKs rolls (in other words, they are no longer in the WPR denominator).

Other Proposals. The Governor also proposes to limit child care reimbursements to the 75th percentile of the regional market (currently the limit is the 85th percentile). In addition, the Governor proposes to further delay implementation of a pay–for–performance county incentive system, which has yet to be implemented.

Future WPR Status. As noted above, some of the Governor’s proposals impact the WPR. Figure 13 (see next page) compares the annual WPR requirements presented in Figure 10 to the estimated WPR for California, assuming the Governor’s CalWORKs proposals are adopted. As the figure shows, the Governor assumes that the WPR would increase by 10 percent over a five–year period ending in FFY 2011 under current law. This assumption is based on continued implementation of recently enacted policies which focused the counties on better engaging CalWORKs recipients with work participation. Any increase is speculative, and the recession will make it harder to employ CalWORKs recipients. However, recent data from Los Angeles County, which comprises almost one–third of the caseload, suggest the WPR will be moving up in FFY 2008 and FFY 2009. Even with the assumed 10 percent increase in the WPR and the impact of the Governor’s proposed policies, the figure shows that the state will have a major WPR shortfall through 2011. Finally, we would note that the state’s WPR status shown here could change significantly, depending on federal direction.

Alternatives to the Governor’s Proposals

Below, we present two LAO alternatives to the Governor’s proposals. In general, these options result in less savings than the Governor, but also cause far fewer children to be removed from aid. In addition, we describe the previously adopted Work Incentive Nutritional Supplement (WINS) program, which the Governor proposes to delay.

LAO Option 1: Adopt Community Service Requirement for Safety Net Parents. As mentioned earlier, the CalWORKs safety net provides cash assistance just to the children of about 50,000 cases where the adult has been aided for five years and is no longer directly eligible for CalWORKs benefits. As an alternative to the administration’s proposal, which terminates benefits for children whose parents do not meet federal WPR requirements, we propose creating a community work obligation of 20 hours per week for safety net parents. The LAO proposal is described in more detail beginning on page C–115 of the Analysis of the 2008–09 Budget Bill. Under the LAO approach, safety net parents who are not meeting federal participation requirements would be offered a 20–hour per week community work requirement created by their county. Counties would have discretion in how to set up the community service requirement. It could be a subsidized employment opportunity pursuant to Chapter 589, Statutes of 2007 (AB 98, Niello), or some other type of supervised volunteer position. Every three months, each client would be placed in a job club/job search program to test the labor market. Parents who refused this job would have their families removed from aid following a home visit to determine if the family was entitled to a participation exemption. We estimate that the annual savings from this approach would be about $24 million. When fully implemented, this option would increase the WPR by about 2.8 percent.

LAO Option 2: Focus Reviews on Families With Able–Bodied Adults. In general, the concept of an in–person self–sufficiency review for families with adults who are not meeting federal work participation requirements has merit. However, we believe self–sufficiency reviews should be focused on cases with work–eligible adults who are not meeting federal work participation requirements. Assuming implementation of this option by May 2009, this approach would result in a net cost of $1 million in 2008–09 (mostly due to start–up costs) followed by savings of $33 million in 2009–10. When fully implemented, this option would raise the CalWORKs WPR by about 0.55 percent.

WINS. Statutory language in the 2008–09 budget package requires the DSS to develop a WINS program. The WINS program would provide $40 per month in additional food benefits to working poor families. Specifically, the benefits would go to Food Stamps families who are working sufficient hours to meet federal work participation requirements, but are currently not receiving CalWORKs assistance. This program is intended to increase the state’s WPR by about 10 percentage points, helping the state meet the federal work participation requirements and possibly avoiding federal penalties in the future. The Legislature added $2 million in the budget to begin the automation changes to implement WINS, but the Governor vetoed this funding.

For 2009–10, the Governor proposes statutory budget language that would delay the implementation of WINS until October 2011. If the Legislature elects to fund this program on an earlier timetable, this would result in costs of $2 million in 2009–10 (for first–year automation costs) and $18 million in 2010–11. Ongoing costs thereafter would be about $24 million. Given these costs, and the state’s fiscal condition, it may be prudent to delay action on WINS until there is some clarification at the federal level on WPR requirements.

LAO Approach

Recommended Budget Solution. At a minimum we would recommend that the Legislature adopt (1) the COLA suspension (for savings of $79 million), (2) the reduction in child care reimbursements ($31 million), (3) the delay in the pay–for–performance incentive program ($40 million), (4) the LAO approach to self–sufficiency reviews ($33 million), and (5) the community service work requirement for safety net cases ($24 million). Together, these proposals provide $207 million in solutions to the state’s General Fund budget problem and would increase the WPR by about 3.3 percent, thus also helping to avoid future new General Fund penalty costs.

Given the magnitude of the budget problem, the Legislature may need to achieve additional savings in CalWORKs. In this event, we would suggest adopting a grant reduction, as described below.

Seriously Consider the 10 Percent Grant Reduction. The Governor’s proposed grant reduction results in substantial General Fund savings, amounting to $294 million in 2009–10. Almost one–third of the negative impact on recipients from this action would be mitigated by an increase in food stamp benefits. Moreover, this policy modestly impacts all CalWORKs families, rather than completely eliminating benefits for entire families, which is the case with some of the administration’s other CalWORKs budget reduction proposals. The loss of 4.5 percentage points in WPR is of some concern, but probably is not critical at this time, considering the potential for change at the federal level.