Welfare Finance Reform : District States Could Face Funding Challenges

T recent unveiling of President Clinton’s welfare reform proposal marks the beginning of a debate which, before it ends, may affect both the design and financing of many welfare programs. While the administration’s proposal would redesign one of the key programs, Aid to Families with Dependent Children (AFDC), debate has already spread to how welfare is financed. Poverty rates, which are determined in part by where the poverty line is drawn, are one of the most important factors included in welfare funding formulas. An issue recently introduced in both chambers of Congress is whether poverty lines ought to be revised according to a state’s relative cost-of-living. Revising poverty lines would greatly affect measured poverty rates and thus the distribution of federal grant money to states for a variety of programs. Welfare finance reform could have a substantial fiscal impact on the budgets of some states in the Tenth district, although the ability to cope with reform will vary from state to state. This article discusses some of the proposed changes in welfare funding and the effect they may have on the states in the Tenth District. Each state’s ability to offset potential reductions in welfare funding will depend on their own budget resources and whether additional funds are provided to states with limited resources and higher administrative costs. WELFARE EXPENDITURES IN THE U.S. AND THE TENTH DISTRICT