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Spending welfare-reform surplus

Former United States Sen. Everett Dirksen once famously remarked, "A million dollars here, a million dollars there, soon we'll be talking real money." The $7 billion in welfare savings has certainly gotten people talking lately.

Since the 1996 welfare reform act, states have slashed their caseloads by nearly half, far ahead of schedule. The result is that five-year federal block grants issued to the states to pay for the reform are now piling up in their coffers. A recent study projected that the surplus could reach $22 billion by 2002.

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And so the tug of war has begun. Congress, stopped by the nation's governors from using the surplus to fund a tax cut, will continue trying to get the money back. Rep. Nancy Johnson (R) of Connecticut, chair of the Congressional Welfare Oversight Committee, recently wrote to governors saying it won't be possible to protect the surplus for long. Translation: Spend it before we use it on something else!

States have argued that a deal is a deal. Washington shouldn't penalize their effectiveness by stealing back the funds. Besides, transforming the entire public assistance system is not a one-shot event, but a process that requires funding to address the new challenges arising when large numbers of people move into entry-level jobs.

In case Washington doesn't buy their argument, however, the states have begun spending the money.

New York has used federal dollars to pay for services it formerly funded itself. Wisconsin has increased welfare benefits, provided car loans and transportation, and funded a tax cut. Florida is pumping $66 million into drug abuse and mental health services for nonwelfare families. Colorado is paying for low-income citizens' dentist bills and car repairs, and giving them $100 bonuses for completing their GEDs.

State after state confirms that the next phase of welfare reform is helping the poor enter the job market for the long term. Barriers to long-term employment include poor education, inadequate skills, single-parenting, and a host of personal problems. Government is ill-equipped to address these issues.

This presents a quandary. States are under pressure to spend their welfare surpluses before the federal government does. But spending new resources on old solutions appears to be an inadequate response.

While many states are clearly making good use of their savings, they are also using the money for stopgap measures instead of long-term poverty-fighting strategies.

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The answer rests in government investing in intermediary organizations whose business is helping people help themselves, by working through caregivers who are closest to the poor. This strategy would build a new caregiving infrastructure that includes a limited role for government and unleashes the myriad of assets in neighborhoods.

Consider Ottawa County in Michigan, the first county in the nation to reduce its welfare caseload to zero. Ottawa County officials credit much of their success to the contract they established with Good Samaritan Ministries to mobilize the church community to assist former welfare recipients transition to work.

Compared with local government efforts in San Diego, which spent 18 months recruiting 18 churches to staff a service center information desk, Good Samaritan enlisted over 50 churches in just a few months to perform the more challenging work of mentoring and counseling. Good Samaritan possessed a credibility with the faith community that government cannot fabricate - and it produced results.

Performance-based contracting with intermediaries would keep costs down and allow those who provide the care - not the government - to decide which programs and organizations would best achieve the terms of the contract.

A second area of investment is capacity-building. Intermediary agencies and the organizations with whom they work need training in administration, securing grants, and building effective partnerships.

Indianapolis Mayor Steve Goldsmith's Front Porch Alliance teaches community-based organizations how to access resources and form useful partnerships. For every dollar the Goldsmith administration has spent on the effort, three additional dollars have been leveraged from outside organizations, foundations, and individuals.

Capacity-building must extend to the business community too. Marriott Hotels and United Airlines have enjoyed unexpectedly high retention rates of former welfare recipients through their personalized, mentoring-based training procedures. Investing in welfare-reform education for corporations and small businesses pays for itself many times over in the form of jobs, benefits, and even career paths.

States are smart to direct funding for needed child-care, transportation, and job-training services. But they are wise if they also invest their surplus dollars in creating a new and expanded infrastructure capable of reducing poverty. Poverty reduction is a much more reliable indicator of a state's general welfare than caseload reduction.

*Jay Hein is director of the Welfare Policy Center for the Hudson Institute, in Indiana. Ryan Streeter is a research fellow there. They are co-authors of the forthcoming 'Transforming Charity' (Hudson Institute).

(c) Copyright 1999. The Christian Science Publishing Society

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