As states save money, who keeps the change?

When Republican Gov. Tommy Thompson of Wisconsin came to town this week, his main message to Washington was, "Keep your hands off our welfare surplus."

The states have had such success getting people off welfare that a big chunk of their federal block grant is sitting in the treasury, untouched. By the end of fiscal year 1998, that surplus totaled $3 billion.

That's enough to make any normal money-dispensing congressman stand up and take notice - and perhaps daydream about what else could be done with those funds. Last year, Rep. John Kasich (R) of Ohio, chairman of the House Budget Committee, tried to cut from the section of the budget resolution that included welfare, but he was turned back.

This year, early in the new Congress, it looks as if that battle may be shaping up again.

Welcome to the latest round of "devolution wars," in which the states fight for and win more control over public money, and Washington tries to yank that control back. This phenomenon has been rampant for decades, throughout the history of block grants (the chunks of money Washington gives to states for specific uses).

In this late 1990s version, Republicans appear to be at war with themselves. As champions of decentralized government, the new GOP-controlled Congress in 1995 fought for, and eventually won, the dismantling of the federally run welfare system, allowing states greater leeway in working to move welfare recipients into jobs.

Now, some Republicans - namely, Congressman Kasich - seem eager to seize back control of some of that money.

"We've heard from members in the House who've heard people talking, saying we should be concerned," says an official from the National Governors' Association. "We've not seen anything that's a firm proposal [for cuts]. But we're definitely concerned that Kasich or others may propose it."

The governors, worried that they'll become victims of their own success in reducing welfare caseloads, aren't waiting around. With the vociferous Governor Thompson at the lead, they got a commitment this week from the new Speaker of the House and from other key House figures on welfare policy that the states' money will remain the states' money.

Planning ahead

The tempest over welfare money also shows how difficult it is for Washington to plan ahead on spending. When welfare reform was being drawn up, caseloads were high, and states got a commitment of federal cash based on those large numbers of recipients.

Since 1996, when the welfare plan became law, the economy has flourished and millions of people have left the rolls, many going into paid employment.

Overall, the national caseload has declined by 35 percent since 1996, from 12.2 million to below 8 million today. Many governors are eager to keep control of the surplus money as a "rainy-day fund," in the event of an economic downturn.

The reform itself, with its emphasis on work, has also been credited with nudging people off the rolls. But, Thompson notes, those who have left welfare already have typically been the easiest to employ. Those who remain often have serious barriers to work, such as drug and alcohol dependency, literacy problems, or mental-health issues.

"These are are things that make it far more expensive to deal with that population than with the first 20 to 30 percent of the caseload," says a state lobbyist here who deals with welfare. "What the governors are saying is, give us more flexibility with how we use that money."

Some states are also concerned with how to help families that have entered low-wage employment rise above a poverty-level existence. They are helping workers with job-retention and training toward advancement to better jobs.

"So, in a number of states, there's a real interest in trying to use the funds to provide various forms of assistance to the working poor," says Mark Greenberg, a welfare analyst at the Center for Law and Social Policy in Washington. "There are a lot of ways that can be done under the federal law."

How to spend the money

Last year, another Washington social-policy think tank - the Center on Budget and Policy Priorities - put out a report suggesting a variety of ways that federal and state welfare surpluses could be used to move people into jobs and help keep them there.

One suggestion is to provide child-care assistance for all low-income people, not just those leaving welfare.

Another center proposal is for states to increase the cash benefits for those still on the welfare rolls, allowing them to worry less about day-to-day subsistence and more about finding work. Even with higher benefits, recipients would still face the five-year lifetime cap on benefits now required under federal law.

According to a congressional aide who deals with welfare, this Congress faces three choices on welfare policy: make no changes, reduce the block grant, or allow broader uses of the money. On the third option, he says, the question is how far afield from a narrow definition of "welfare" might some uses for the money go.