An Introduction to the Issues

James Hosek and Robert Levine

What Is the New Fiscal Federalism?

Answered narrowly, the new fiscal federalism consists of federal legislation to restructure the funding mechanism of domestic programs in areas such as health care, welfare, and training. The changes would provide block grants to the states--specific federal appropriations giving the states funds to use at their discretion, within broad guidelines, in the areas of Aid to Families with Dependent Children (AFDC), the central and most controversial component of welfare; Medicaid; and job training. This would represent a dramatic change for AFDC and Medicaid, which today are entitlement programs in which federal law allows any person meeting low-income and other criteria to receive assistance. The change in job training would be more modest, since federal training efforts have for many years been composed of categorical grant programs. The block grants would contain new guidelines for states--in some cases giving them more freedom of action, in others imposing federal goals. Block grant funding would be at levels below the projected amounts for the programs in their current form.

More broadly, the new fiscal federalism is the latest wave in a movement to shift more power and authority from the federal government to the states. In 1971, Richard Nixon proposed special revenue sharing in an attempt to shift program control to the states and thereby side-step congressional politics that targeted categorical grants at specific constituencies. In 1981, Ronald Reagan proposed a sweeping program of categorical grant program consolidation, eventually gaining passage of legislation that brought together 57 categorical grants into nine block grants. Nixon proposed general revenue sharing as well, and its passage returned unrestricted federal revenues to the states. Like the most recent initiative, the Nixon and Reagan block grant initiatives anticipated various efficiency gains to be achieved by pruning back the bureaucracies required to administer the many categorical grants, by cutting federal restrictions and paperwork, and through greater local control.

The Reagan block grants turned out to have several positive effects. Three years after their passage, the grants had led to greater state flexibility in program design, lower administrative costs, little funding reduction in areas in which states already had significant spending, little redistribution of benefits away from the poor to the middle and upper income classes, and evidence of state capacity for efficient administration. Some income eligibility requirements were tightened, although changes in other criteria largely offset the resulting effects. These outcomes were basically the reverse of what critics had expected and occurred despite the fact that block granting was accompanied by a funding cut of 13 percent relative to the 1981 baseline.[1]

Several additional elements fuel the new federalism. Although present in the Nixon and Reagan rounds, they are more prominent now and include the states' rights movement, the bipartisan efforts to reduce the federal deficit, and states' desires to gain more control over their budgets. The states' rights movement points to the 10th Amendment of the Constitution, which states that "The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people." States are concerned that their power to set policy and fund it has been sapped over time by the expansion of federal policymaking and taxing authority. Whereas in the 1960s public debate considered how to ensure equal treatment across states, leading to support for a prominent federal role in social program design and funding, today states are concerned with efficiency and their authority to adapt programs to local conditions and preferences.

Federal deficit control, perennially acknowledged but postponed, now appears to be moving toward a credible bipartisan consensus. As both sides of Congress agree, deficit reduction will require significant cuts--upwards of 15 percent--in domestic programs. In view of the program pressures that will result, and the possible backlash from program constituencies, Congress is willing to provide greater authority to states to design and implement programs in exchange for states taking on the responsibility of doing so under reduced budgets. Finally, states seek to gain more control over their budgets. Control has been ebbing because of the imposition of unfunded federal mandates, which states and localities must pay for, and because of the growth in entitlement program costs. AFDC and Medicaid require states to match federal funds, and Medicaid costs have grown rapidly. The burden of unfunded mandates and matching requirements comes at a time when many states' revenues are growing slowly and other needs are pressing, such as education and infrastructure. Block grants eliminate matching requirements and, once enacted, may be less subject to additional unfunded mandates.

Both states and the federal government foresee potential gains from block grants. States can gain greater policy autonomy and budget control. Even though block grants will come with federal guidance and at reduced funding, states will nevertheless have greater freedom to change eligibility requirements, devise programs that recognize the heterogeneity of program clientele (treat different groups differently), and influence the coordination of activities across agencies. For its part, the federal government should be able to make progress toward deficit reduction. Block grants will be funded at levels below the anticipated spending levels, and further, because block grants are fixed, the federal government will be relieved of responsibility to cover cost increases if states should broaden their program eligibility, increase benefits, or otherwise experience increased program participation and cost. Politically, federal legislators may deflect backlash from spending cuts by shifting program responsibility to states, and state legislators may gain strength by constructing programs better suited to the state's economy and population.

In addition to the cost-cutting and decentralization aims, the proposed changes, particularly those in AFDC and Medicaid, have been motivated by social concerns related to deficiencies in program design. Advocates of change believe that AFDC provides weak incentives to work and encourages out-of-wedlock birth, marital dissolution, and welfare dependence. Medicaid has resulted in runaway cost growth and has been a major source of unfunded mandates through expansions. (In the 1980s Medicaid coverage was extended to disadvantaged pregnant women, children, and immigrants.) In addition, Medicaid has become a prominent indirect means of covering the health costs of the uninsured, and Medicaid contains weak incentives for providers to control cost. Training encompasses a large number of categorical programs that overlap in scope and clientele, and many training programs have not proven to be cost-effective. On net, this critique paints an image of programs that are too costly and, in the case of welfare-related programs, offer little incentive for personal responsibility and self-reliance.[2]

Much of the proposed new structure is controversial. Apparent political consensus exists on the desirability of federal expenditure reduction and program decentralization, and on the failure of current AFDC and Medicaid programs, but the size of reductions, the abandonment of national entitlements, and the proposed new program structures have by no means been agreed to.

The central fear of opponents is that the end of national entitlements will tear holes in the safety net through which many people in need, particularly children, will fall. Under current programs, the federal government guarantees some level of welfare and medical support to all who fall within defined categories of need. The block grant proposals turn over to the states decisions on who will be supported: Some states may continue or even expand entitlements similar to the current ones; others may drop them. The incentives for dropping or severe cutting are strong; federal funding will be cut, so that maintenance of standards in the face of rising caseloads or growing costs will increasingly be born by state and local taxpayers. The incentives in any state will be to decrease benefits in the hope that recipients will perhaps move to a more generous locale, or--perhaps more likely--not be attracted from other states.

Additionally, the central objective of the proposed new welfare system, in conjunction with proposed changes in job training, is to get people off welfare and into work. This represents a striking shift from the original rationale of the federal welfare system--to allow mothers to stay home and take care of their children. Although today's goal of moving welfare recipients into work is now widely accepted, opponents doubt whether the new programs will achieve it any better than the old ones. Existing and past training programs have been at best marginally effective; reduced federal funding under the proposed programs will make more difficult the one support that many believe to be central to the transition from welfare to work: child care. Under these conditions, the effectiveness of the work incentives in the proposed welfare block grants is not clear.

Other criticisms of the block grant proposals are that they make little provision for cyclical and other changes over time that may increase overall needs and shift the allocation of needs among the states, and that they impose their own new federal rules on the states--for example, the proposal that a single mother under 18 be required to live with her parents and enroll in school or job training.

The next two sections of this chapter take up the proposals in more detail and describe some challenges the states will face if major provisions are eventually passed and implemented. The chapter then examines several specific issues for California and concludes with comments on the tension between devolution by means of block grants and protecting the safety net.

The Block Grant Proposals

The essays in this volume describe the AFDC, child care, child protection, Medicaid, and training block grants proposed by Congress in fall 1995 and discuss their consequences. We examine the proposals briefly here to show the flexibility they allow and the restrictions they impose, and to introduce some of the implications. The value of these proposals lies in illustrating the elements of the policy debate. These elements are likely to reappear as the debate continues, though not in the exact form initially proposed.

The welfare block grant proposals include AFDC, child care, and child protection, and would replace a variety of current programs. AFDC is a federally supported entitlement program making available support to all children in qualifying female-headed families and families with two unemployed parents; support levels are determined by the state. Child care and child protection include a wide variety of entitlement programs such as school lunches.

Main features of the proposed block grants include

  • two years' cash assistance while eligible for AFDC plus three more if working, for a lifetime limit of five years,
  • a goal of 50 percent of single-parent family heads working by 2002, and 90 percent of two-parent family heads working sooner (by about 2000),
  • no benefits for additional children born to welfare recipients,
  • state can borrow from a federal contingency fund but must repay loan,
  • food stamp eligibility and benefits can be changed by states so as to mesh better with AFDC changes,
  • child protection, child and family services, and child care combined into block grants, whereas foster care remains an entitlement program, and
  • nutrition programs combined into a block grant.

Medicaid currently provides federal funds for an entitlement program available to all those on AFDC and other low-income people. The House-proposed MediGrant block grant

  • bases the grant amount on recent historical allocations,
  • offers states increased flexibility to determine eligibility, benefits, and financing,
  • allows experimentation with vouchers, fee-for-service, managed care, utilization controls, and the like, and
  • allows states to charge premiums and to impose deductibles and co-insurance (except for AFDC families below the poverty line).

Soon after this proposal was introduced, the National Governors' Association suggested a modified version allowing some growth in grant size from year to year.

The proposed training block grants substitute not for entitlements but for a miscellany of narrowly categorical federally supported programs. The proposed block grants would

  • consolidate job training and vocational education programs,
  • eliminate categorical eligibility on the basis of unemployment or disadvantaged status,
  • require states to create "one-stop" career centers and maintain the Employment Service,
  • emphasize accountability and performance standards, and
  • allow some use of vouchers for training.

Compared with the House bill, the Senate bill offers considerable latitude to move funds between job training and vocational education. The Senate bill allots 25 percent for workforce employment activities, 25 percent for workforce training, and 50 percent for a flex account allocable by the governor.

Welfare

Many states have already begun to reform their AFDC programs through waivers that allow for the introduction of experimental changes for the purpose of evaluation. However, waivers offer only a temporary exemption from federal rules. Block grants allow states greater scope for change, and the successful changes can be kept at the state's discretion. California, Missouri, Michigan, and Wisconsin are among the states seeking a vast restructuring of their AFDC systems, and the goals and provisions of the block grants are consistent with their ongoing activities.

Nevertheless, the loss of entitlement status, funding reduction, and work requirements pose difficult challenges. Meeting the 50 percent and 90 percent working requirements will be hard because jobs may not be available, and although public sector jobs can be created, it will be costly.[3] Job training programs have a history of limited success and can be expected to produce only small increases in wage and employability. If the goals are not met, states face the financial penalty of a 5 percent cut in their block grant. Thus, the inherent question facing states is whether the incremental cost of attaining the goals is less than or greater than the penalty--if the goal cost is too high, states will opt for the penalty. Even if they do, however, that would not necessarily slow down the existing efforts within many states to changes the terms of welfare, replacing an ongoing entitlement to those eligible with a reciprocal obligation involving public support in exchange for progress toward economic self-reliance.

Whether or not such self-reliance is achieved, the five-year lifetime limit means that the federal government would no longer be obligated to share in the cost of public support of children and other members of families with adults who, though able-bodied, have long-term dependency needs. Many of these families would transition onto General Assistance, the residual welfare program for those who do not fit into AFDC or other welfare categories. Since General Assistance receives no federal funds, the cost burden would shift to states and localities.

A shift from AFDC to block grants will thus create serious risks for the welfare population, foremost being the end of entitlements. Although General Assistance provides a secondary safety net, its benefit levels are often considerably lower. Children, in particular, may be severely disadvantaged. Nor is there any requirement that states and localities fully fund General Assistance. If they cannot or do not, it is not clear what the sources will be for final support to these family heads and their children.

The preferred outcome of achieving self-reliance through employment, toward which the new programs aim, raises its own tough questions: Will additional education and training sufficiently increase skills and instill better work habits? Will child care and trans-portation be available? Will child care, Medicaid, and food stamps extend beyond welfare?[4] Wisconsin, for instance, has determined that in its welfare reform, child care and Medicaid must be extended to all working poor, in part to maintain welfare family heads' incentive to transition to work; many other states have not yet developed an integrated perspective, thereby leaving welfare recipients to wonder about such bridge support. Further, child care funding will be reduced under block grants, but AFDC work requirements will increase the demand for child care. This leads some to wonder whether the quality of child care will diminish--and with it the positive effects of child care on children's development. Funding for family protective services will also be reduced under block grants, raising the possibility that cases of child abuse and neglect will more often be handled by removing the child from the family and opting for foster care, which remains an entitlement.

Medicaid

Like AFDC, the proposed Medicaid block grant proposal will re- inforce efforts already under way to reform policy. As Medicaid costs have spiraled upward, states have sought ways to control cost growth. The Medicaid block grant provides states with the authority to employ tools such as utilization review, premiums, and deductibles and copayments that can be effective in controlling costs. In addition, the move toward managed care may accelerate, which would reduce the amount of indigent care given in costly hospital emergency rooms and outpatient clinics, and potentially offer more routine and preventive health care and better medical record management. Still, because of the fixed nature of block grants, states would assume the financial responsibility to cover cost increases, which in turn could create pressure to reduce the range of benefits and tighten eligibility. Tighter eligibility, depending on how it is implemented, could rub against the need to expand Medicaid coverage to include workers who transition from welfare into jobs that do not include health insurance. Another factor is that under the Medicaid entitlement program, Medicaid helps cover the health costs of the many uninsured who receive care at public hospitals, which perform a last-resort function for health care similar to that of General Assistance for welfare. Medicaid support for the uninsured would be eliminated under the proposed block grant.

Training

The gains to training from block grants may be small because the training reforms in 1973 and 1982 already consolidated many categorical training programs and decentralized their control to the local level. As part of those actions, private industry councils were created to develop training programs that coordinated training with employer needs. The fact that block grants will combine job training and vocational education may lead to little tangible difference, not only because past efforts have tried to link these two areas, but because training and vocational education serve different clientele and provide different services. Still, the Senate bill--with its 50 percent flex account--creates an opportunity for greater statewide coordination of job training, although without sacrificing the high degree of local control that now exists. This opens the possibility of meeting an employer's needs by training provided in other communities, provided workers are willing to move to where the jobs are. The flex account should also make it easier to use training funds for the welfare-to-work transition.

Implementation Challenges

To realize the potential of block grants, states and communities must work together on a host of activities. These include establishing and administering new or modified programs, allocating block grant and state funds across localities, evaluating policy options to determine the best policy approach, monitoring effectiveness and determining further improvements, sharing information to learn from one another, and--underpinning all of this--creating integrated data systems.[5] All of this will take time to do, as is true of any large organizational change. State actions will have to lie within federal guidelines and goals (e.g., the work goals and time limit for welfare), and it is possible that by the time block grant legislation is finally approved, it will contain additional restrictions that make it seem more categorical in nature. States and localities will need to invest in their governance capacity, including planning and evaluation, personnel training, and data systems, and the funds for this investment will have to be found.

States must devise funding and financing strategies to cope with the end of entitlements. Once set, block grants do not adjust with changes in population, demographics, or economic conditions, all of which can vary across states and within states.[6] Either the states and localities cover the added costs of contingencies or they reduce coverage, benefits, and quality of service. The situation is complicated by the slow growth of state revenues, the pressing needs for other uses of state funds--for example, investment in infrastructure and education, seen as essential to economic development--and the constraint of balanced budget requirements. All states but Vermont require an ex ante balancing of a state's budget, thereby prohibiting, even during recessions, budgets intentionally based on deficit funding.

Block grants bring state/local relations to the fore. Block grants provide new opportunities to integrate programs and rethink social service delivery, and states will have to provide strategic thinking as well as incentives for cooperation and integration, or else the existing stovepipe structure of social programs will remain. However, block grants come to the states, and their political incentive may be to retain control of funds but push down responsibility for implementation. This could thwart local innovation and remove a potential gain from devolution, namely, making greater use of local knowledge for structuring and administering local programs.

Indeed, local agencies are wary of more responsibility without more resources. States could impede local efforts by adding new restrictions and accountability requirements, finding ways to divert block grant funds to other uses and reducing state safety net spending. Block grants remove state matching requirements for AFDC and Medicaid, and the proposed maintenance of effort requirements are fairly weak; that is, they give states latitude to shift state dollars to other uses.[7] State balanced budget amendments, too, raise the specter of cuts in funding to localities.

State concerns about block grants are to some extent related to the cuts in federal funding they will bring. If block grants brought states new flexibility without funding cuts, the potential adverse consequences would abate, although not disappear. Similarly, the opportunities for successful and rapid implementation would potentially increase.

California

Over the last two decades, California voters have used the initiative/referendum process to make it more difficult for the state and its localities to raise revenues by taxation. In particular, Proposition 13, passed in 1978, limited both state and local taxing powers. Ten years later, Proposition 98 constrained the governor's and legislature's ability to allocate state spending among functions. As a consequence of these enactments and some older peculiarities of state/local governance, the block grant proposals will present California with some special difficulties.

  • A common principle of governance is that authority and resources be placed at the same level. In California, Proposition 13 has shifted revenue-raising power away from localities and to the state. The proposition limited property tax to 1 percent of property value (sale price) plus a growth factor not to exceed 2 percent per year. In addition, it required two-thirds legislative or referendum majorities to increase taxes at state and local levels, respectively. These provisions sharply reduced California localities' ability to raise revenues.
  • For almost 15 years after the 1978 passage of Proposition 13, the state budget included substantial compensatory fund transfers to the counties as well as other localities. With the passage in 1988 of Proposition 98, which dedicated a fixed percentage of state general revenues to K-14 education, however, state subsidies to local governments became more difficult. In the early 1990s, California had a fiscal crunch, caused in large measure by the national recession and the deep spending cuts in defense aerospace. Operating in conjunction with Proposition 98, the crunch led the state to reverse course, abruptly reducing fund transfers to the counties and cities and causing major crises in several of them, including Los Angeles. in particular, in 1992- 1993 and 1993-1994, $3.9 billion of property tax was shifted to schools and away from counties, cities, redevelopment agencies, and special districts.[8] Localities' limited fund-raising ability and the end of state compensatory funding have created extremely tight fiscal straits for them. This heightens their concern that under the new fiscal federalism they not be left with more responsibility and fewer resources, and further, that some means of contingency funding be established for downside risks. Such risks could come from unexpected population growth, widespread recession, local recession, epidemics, and so on. Benefit coverage for immigrants, documented and undocumented, remains another factor for localities to watch (and is also part of the continuing federal debate about program reforms).
  • Given the political near-impossibility of rescinding Proposition 13, California has increasingly turned to special districts to fund public services. In particular, nonenterprise special districts rely upon tax and assessment revenues to finance service delivery in fire protection, flood control, air pollution control, and many other functions. Today, nearly one-fourth of all state revenues come from special revenue funds.[9] California may need to investigate the possibility of creating special districts to fund social services, viewing the latter as serving the community at large. (The Jarvis Gann group, which fostered the passage of Proposition 13, is now seeking to qualify a ballot measure for the November 1996 elections to require a vote of the electorate for any new assessments, including those that would fund special districts.) In a related vein, California might also consider outsourcing service delivery as a possible means of reducing administrative cost and increasing efficiency, as suggested at the Conference.
  • In California, General Assistance is financed by the county,unlike most states. The General Assistance caseload could swell because of the AFDC five-year limit and add greatly to counties' fiscal burden. In effect, this would constitute a shift of responsibility to the county but without the resources; AFDC agencies would have the incentive to devote their efforts to the most employable and allow the least employable to exhaust their five-year limit and become wards of the county. To avoid this, state and local officials at the Conference suggested that General Assistance become a state responsibility, thereby integrating this program and its funding burden with that of AFDC.
  • California has relied on Medicaid to pay a significant portion of caring for the uninsured population, more than other states. As a result, California will be especially hard hit if and when this funding is ended under a Medicaid block grant. California will need to develop an alternative strategy and funding source for the uninsured.
  • Relative to other states, California's cost per Medicaid enrollee is quite low. However, California could be heavily penalized for its success in controlling costs if the Medicaid block grant is based strictly on recent historical expenditures. For this reason, California has reason to follow closely the debate over the Medicaid block grant allocation formula.

The property tax limitations of Proposition 13 remain highly popular in California, apparently even among those who have purchased property since its passage and are thus liable for much higher taxes than their long-resident neighbors. These limitations are therefore considered politically untouchable, although some advocates of more fiscal flexibility believe that the supermajority requirements for increasing other taxes might be relaxed. It is not clear whether the state's constitutional revision commission will recommend this, even in the context of an overhaul of California's basic law, which has been laid down over an 80-year period under the initiative/referendum process introduced by reform governor Hiram Johnson.

Looking Ahead

The debate over the new fiscal federalism has delineated the tension between devolving greater authority to the states by means of block grants and maintaining the strength and resiliency of the safety net by means of the entitlement concept. Block grants can help the federal government reduce cost growth and thereby lower the deficit, but the end of entitlements spells the end of federally underwritten, open-ended support available to all eligible persons among the nation's disadvantaged.

Compromise between these positions, should it occur, might take the form of constrained entitlements, that is, maintaining the federal entitlement concept but with changes in program structure that control usage and limit cost growth. There is seemingly much common ground in welfare and Medicaid. President Clinton, having vetoed the congressional welfare reform bill, nevertheless shares much of the Republican position, agreeing that AFDC should have a lifetime limit, emphasize work and economic self-reliance, and promote strong families and personal responsibility. Similarly, both the Administration and the Congress favor limiting the cost growth of Medicaid. The agreements in welfare represent possible steps toward overall compromise; the interest among federal legislators in Medicaid demand- and cost-limiting measures such as managed care, utilization review, and premiums also indicates room to compromise. Limiting individual entitlements to welfare does not fix a cap on total welfare expenditures, meaning that federal funds would be available to support expanded caseloads during a recession. And the Medicaid measures do not eliminate the entitlement concept but rather constrain its cost.

However, maintaining the entitlement concept, even with constraints, is at odds with devolving authority to the states. Entitlements require the federal government to bear major funding liability, rather than capping it as block grants would, and history suggests that so long as it bears the brunt of the funding liability, the federal government will want to retain considerable control. Thus, the preservation of entitlements may be tantamount to retaining federal control over the AFDC and Medicaid programs, which is contrary to what states' righters seek. States then would neither be able to achieve the full decisionmaking authority and budget control they would like nor correct the structural flaws they see in these programs.

Additional flexibility might be gained by maintaining entitlements, but rewriting the rules of AFDC and Medicaid to allow greater state autonomy in program design and execution, perhaps with periodic federal review and a mechanism to assess program effectiveness and cost. That would allow states to explore alternative program structures; and if done under broad federal rules and the continuation of entitlements (albeit constrained), the interests of the disadvantaged would be protected. States would have more opportunity to tailor programs as they see fit and not be constrained by the temporary nature of waivers; waiver periods might be made longer. By keeping the entitlement concept and requiring evaluation, this approach also alleviates concern about the untried nature of state programs. Although states want more control, it is nevertheless true that it has not been made clear how they will handle contingencies not under their control that increase the demand for safety net support; retaining entitlements helps alleviate this concern. Further, as with any significant change in program goals or operation, uncertainty exists about how effective the state programs will be in moving people off welfare and not jeopardizing child well-being; again, entitlements provide assurance that an increase in the number disadvantaged families will not result in their being underserved by the new system.

Lacking such a compromise on constrained entitlements, advocates of block grants need to devote more effort to clarifying how they will handle contingencies and how their programs will maintain a strong safety net even with reduced federal funding. Building this case should help them gain support for passage of the devolution agenda, whereas not building it may weaken their cause. Additionally, with regard to Medicaid and child care, the states and the federal government must consider whether to extend these benefits to all working poor--eliminating the abrupt benefit loss when leaving welfare and extending health coverage to the uninsured--and how to pay the added costs of doing so. This is an important complication because of its intimate relation to the prospects for moving people off welfare and into work.

Finally, local governments, agencies, and institutions have so far been the state's quiet partners in the new fiscal federalism, but their role is critical to its success. Their challenges will include contributing to the development of new program goals, procedures, and incentives, ensuring that resources accompany responsibility, and investing in governance capacity including integrated data systems. The debate over federalism should be enlarged to ask what authority localities will have to innovate in program design and integration, and to allay concern that localities will find themselves hampered by new state regulations.

Notes

[1] This paragraph draws on George Peterson et al., The Reagan Block Grants: What Have We Learned? The Urban Institute Press, Washington, D.C., 1986, pp. 21-27. Because the assessment relied primarily on administrative data, little could be done to detect whether subtle adverse changes such as a decline in the quality of services had occurred.

[2] A recent survey of state policy advisors concludes that "With or without block grants, states are making, or planning to make, dramatic changes in their social welfare programs." See The States Forge Ahead Despite the Federal Impasse, CGPA's January 1996 Survey of States on the "Devolution Revolution," Council of Governors' Policy Advisors, Washington D.C., 1996, p. 3.

[3] About 50 percent of these family heads are on AFDC, and of them, about 15 percent are employed. Thus the work goal requires raising the percentage working from 15 percent to 50 percent. Among the 50 percent off AFDC, about 85 percent are employed. Robert Moffitt, "Incentive Effects of the U.S. Welfare System: A Review," The Journal of Economic Literature, Vol. 30, No. 1, March 1992, pp. 11-14.

[4] These questions parallel the issues on the minds of welfare mothers. See Jan L. Hagen and Liane V. Davis, Another Perspective on Welfare Reform: Conversations with Mothers on Welfare, Rockefeller Institute Bulletin, Albany, New York, 1995, p. 32.

[5] Nathan urges states to provide common access to social services and develop integrated data systems. "If states really linked up their data systems for welfare, jobs, social services, and health by requiring state agencies to share data for these programs, the new world of social program management would never be the same again. Instead of top-down coordination that agencies and interest groups fight and defeat, put the data together to create one-stop systems for social services." Richard Nathan, Hard Road Ahead: Block Grants and the "Devolution Revolution," The Nelson A. Rockefeller Institute of Government, Albany, New York, 1995, pp. 21-22.

[6] Block grant formulas could be devised to adjust for these factors, but even with adjustors block grants are unlikely to vary closely with the size of the eligible population or its costs.

[7] However, as mentioned, there was little evidence of reduced state funding under the Reagan block grants. See Peterson et al., pp. 21-27.

[8] CAL FACTS, Legislative Analyst's Office, January 1996, p. 23.

[9] CAL FACTS, pp. 26-27.


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