From the Dispatch

Move Your Money: Investing Public Money in Local Banks and Credit Unions to Spur Growth

Altaf Rahamatulla — Thu, 28 Jan 2010 13:12:04 -0500

In an effort to stimulate local economic growth and free up credit markets, New Mexico Sen. Tim Keller and Rep. Brian Egolf introduced HB66, which would require the state to give preference to community banks and credit unions to manage the state's general fund operating cash depository account. Currently, Bank of America holds the $1.4 billion account.

Rep. Egolf explained that he was particularly motivated by Move Your Money, an exciting campaign that encourages individuals to transfer their money from banks that are "too big to fail" and begin using smaller community banks that are much more likely to reinvest those funds in the community. The initiative is additionally a rebuke of the reckless actions of major financial institutions that led to the recession and the vast sums of government dollars that have flowed to these companies since the downturn began. As Sen. Keller explains, "[r]ight now national banks benefit from our state's taxes, every dollar of our state funds we deposit with local banks is another dollar available for New Mexican businesses and working families' mortgages and small business loans."

Strengthening Pension Fund Accountability: In a similar vein, Sen. Keller has also introduced SB18 to reform New Mexico's Investments Oversight Committee. Partly in response to pension scandals and other instances of corporate abuse, Sen. Keller intends to prevent corruption and promote good government by strengthening accountability mechanisms. To do so, the bill would ensure that the decision-making power of the Oversight Committee is not centralized in the executive branch and mandates that public members, to be appointed by various legislative officials, join the board. The bill would additionally create an Alternative Investment Advisory Committee that would provide recommendations and review certain assets and investment choices of the state's retirement board.

Other States Moving Money: New Mexico is not alone in recognizing that investing in local banks and credit unions foster growth and assist working families:

Officials in Lake Oswego, Oregon plan to invest $1 million in local banks. The city's Finance Director, Ursula Euler, commented, "[i]t was really just an idea to show our support and goodwill toward the local economy and we wanted to balance that with an investment decision."
In his State of the City Address, New York City Mayor Michael Bloomberg outlined a plan to invest $25 million in tax revenue in local credit unions: "With Albany’s approval, we’ll also strengthen neighborhood-friendly credit unions, which reach out to customers who may have never had a bank account... It’s a relatively small amount of City resources, but it will have a big impact by allowing credit unions to make more loans to more low-income families." This idea was originally proposed by the One City/One Future collaborative, who presented several innovative development and economic policy suggestions for New York City in their report, A Blue Print for Growth That Works for All New Yorkers.

The initiative is not likely to harm major financial institutions, but would have substantial impact as an engine of local growth. State lawmakers should explore the prospects of investing state funds in community banks and credit unions as a means to spur development, create jobs, assist state residents, and take proactive steps towards shoring up battered economies.

Resources:
Drum Major Institute - New York City Moves the Money
Move Your Money - Will New Mexico Move Its Money?
Newsweek - Break Up the Banks Yourself
One City One Future - A Blue Print for Growth That Works for All New Yorkers

State Job Creation Strategies Part I: Finding the Money and Investing in Human Capital and Physical Infrastructure

Nathan Newman — Tue, 19 Jan 2010 12:59:28 -0500

The fundamental challenge in this recession is that the growth that preceded it was a mirage. Bubble era borrowing created a network of financial jobs, real estate jobs and construction jobs that collapsed with the end of the bubble. Many of those jobs will never return.

An extremely high proportion (75%) of job losses in this recession are permanent rather than temporary. States will need to nurture completely new industry sectors and the infrastructure to support those jobs, while the jobless will need retraining in new skills to participate in those sectors.

The Private Sector Can't Do it Alone: As the Economic Policy Institute wrote recently, "it is likely that unemployment will remain above 8% even two years from now in the absence of bold and decisive action to create jobs." With the credit crunch and the reduction in consumer demand, small businesses are experiencing tough times. In 2008, for example, 43,500 businesses filed for bankruptcy, up from 28,300 businesses in 2007 and more than double the 19,700 filings in 2006.

What's needed: As this Dispatch will highlight, the first step is to fund jobs that support long-term economic competitiveness, notably by investing in people and physical infrastructure. While the economic climate for profit-making business opportunities is more limited, investments in education, health care, transit and energy efficiency can create immediate jobs while strengthening building blocks for long-term growth.

Next week's Dispatch will be a second part of this series on how states can nurture startups, strengthen existing industry sectors, and promote green jobs in their states.

Mobilizing for a Federal Support for Jobs and State Fiscal Relief: As we highlighted two weeks ago, a critical part of job creation will be a new round of federal job creation and state fiscal relief. We are asking state legislators to sign onto a letter to promote this job creation plan at www.progressivestates.org/jobcreation or by emailing jobcreation@progressivestates.org. Advocates can sign onto a similar letter for organizations or use our handy online tool to contact their state legislators to let them know about the job creation letter and to encourage them to sign.

Resources:
Progressive States Network - Take Action: Additional Federal Job Creation and State Fiscal Relief Needed
Economic Policy Institute - American Jobs Plan: A Five Point Plan to Stem the U.S. Jobs Crisis
Center for Labor Market Studies (Northeastern Univ.) - The Great Recession of 2007-2009: Its Post-World War II Record Impacts on Rising Unemployment and Underutilization Problems Among U.S. Workers

Direct Public Money to Investments in Economic Growth

In the current economic and fiscal crisis, finding the funds for long-term investments is a challenge, but those investments will deliver both short-term jobs and long-term economic growth to turn state economies around. States need a balanced approach of revenue increases, bonds for long-term investments and tapping existing sources of state capital like state pension funds to marshal the capital needed for economic recovery.

Raise Revenues, Don't Cut Public Investments: The recession has made clear the hollowness of the bubble economy in many states, especially in some of the low-tax, low-investment Sunbelt states touted by anti-tax forces as exemplars of economic growth.

When measuring long-term economic competitiveness, states with some of the highest marginal tax rates on individuals -- from New York to Maryland -- were supporting some of the most innovative "new economy" industries in the country, according to a 2008 analysis by the Information Technology & Innovation Foundation. As we detailed last year, progressive tax increases to fund economic recovery are the better alternative to budget cuts. Many needed investments are in the fundamentals of education and infrastructure as well as in the nurturing of new sectors where private capital is unlikely to effectively step in. Increased tax revenue to fill in government and private sector gaps in investment is clearly needed.

Use State Bonding Authority: One obvious source for funding long-term growth projects are new bonds that can be paid back with the tax revenue yielded by greater economic growth. Especially where tolls or energy savings will directly return revenue to the state from bonded investments, legislative leaders are aggressively pursuing new bond investments.

The federal ARRA recovery plan provides a two-year 35% tax credit for state Build America Bonds, which is yielding record low interest rates for states that are issuing bonds. For example, Washington state received an interest rate equivalent to 3.52 percent on $500 million in bonds issued in October. To help municipal governments take advantage of lower interest rates and lower issuance costs, nearly a dozen states have created "state bond banks" to pool the loans of local governments.

A few examples of recent state bond discussions around the country include:

The Ohio House of Representatives has approved placing a $950 million bond issue on the May 4th ballot to renew for another five years the state’s largest economic development project, the Third Frontier, which invests in research and commercialization of technology in five industries sectors and created 41,300 jobs from 2003-2008.
Last week, the Washington State House Capital Budget Committee approved sending $861 million Jobs Act Bonds to voters in November to fund schools and colleges to fund energy upgrades. The sponsor, Rep. Hans Dunshee, estimates it would create 38,000 jobs and generate energy savings that will cover much of the interest costs.
Minnesota legislative leaders are proposing $1 billion in bonds to build and repair facilities around the state.

Use Pensions Funds for In-State Investments: Unwilling to rely on uncertain global investment markets to fuel economic growth, states are increasingly choosing to directly invest in local state businesses. Instead of giving away corporate welfare and subsidies, states can offer needed capital to create a financial stake in firms. If these businesses are successful, they return equity to taxpayers that can be reinvested in other projects.

One study found that the California Public Employees' Retirement System's in-state investments fed an estimated $15.1 billion into in-state economic activity in 2006 and created 124,000 jobs-- more jobs than the construction or motion picture industries. Other examples of in-state pension investments include:

Florida Governor Charlie Crist recently signed an economic stimulus plan for the state that redirects $1.95 billion of the state's pension fund into direct investments in Florida's economy.
Washington state held $1.4 billion in Washington-based investments at the end of 2008, using the money to leverage additional capital from other sources to invest in the state.
New York held $403.6 million as of March 2009 through its Common Retirement Fund with another $500 million available to invest in New York-based businesses.
The Invest Michigan! Fund features The Michigan Opportunities Fund and the Growth Capital Fund and is capitalized with $300 million from the state's pension fund.
In Indiana, the public pension funds collaborated with state universities and various health-based companies to launch the Indiana Future Fund, an investment fund designed to benefit Indiana companies, especially in the life sciences and high technology arena.

Avoid Privatization as a Funding Source: Given budget deficits, some states are being lured by the supposed "free lunch" offered by selling or leasing public assets to private firms with the promise of upfront private investment. Unfortunately, as we have detailed repeatedly (see here and here and here), privatization of public assets are inherently likely to ripoff the public to the benefit of private interests.

As detailed in a U.S. PIRG report last year, since governments can issue tax-free bonds at lower rates than private investors, "deals based on private capital are inherently more expensive than public financing." In 2008, Missouri was planning to use some form of privatization with investors to fund an ambitious plan to repair or replace 802 bridges. Now, the Missouri DOT is funding the entire project through the sale of government bonds.

Don't Waste Money on Direct Subsidies to Businesses: One general caution for states is to limit grants, tax credits and other giveaways to business. Instead use either direct equity investments or loans that are repaid in order to replenish the supply of public capital over the long-term.

States waste money competing for firms to cross the border from another state, rather than on fostering entrepreneurship and new jobs. A recent Good Jobs First report on high-tech deals by states notes that many are extremely costly. The poster children for bad deals are North Carolina's large subsidies to Dell Corporation, who took the money, but then sent the 900 jobs off-shore four years later and New York giving microchip maker AMD (later Global Foundries) $1 million in taxpayer funds for each job being created by the firm upstate. As the report states:

Tax reductions, exemption or credits “exert a very small marginal influence on corporate investment decisions because other cost factors such as labor, occupancy and other key inputs are far larger than taxes (or tax breaks)… For the vast majority of companies, tax breaks are windfalls, not determinants, and are therefore wasted.

Redeploy Wasted Corporate Giveaways to Real Public Investments: If states do a thorough review of ineffectual subsidies, costly contracting out, and tax credits, they can generate additional revenue that can be used for more effective job creation efforts. Progressive States Network has worked with allies to outline model Corporate Transparency in the State Budget legislation and set up a supporting campaign webpage to help achieve that goal.

As the rest of this Dispatch emphasizes, states can better invest scarce public dollars in upgrading the quality of the workforce and infrastructure, rather than engaging in costly bidding wars with other states for jobs.

Resources:
Information Technology & Innovation Foundation - The 2008 State New Economy Index: Benchmarking Economic Transformation in the States
U.S. PIRG - Private Roads, Public Costs: The Facts About Toll Road Privatization and How to Protect the Public
Council of Development Finance Agencies - State Bond Banks: Municipal Borrowing Made Easy
CALPERS - CalPERS - An Economic Engine
Good Jobs First - Growing Pennsylvania's High-Tech Economy: Choosing Effective Investments
Progressive States Network - Corporate Transparency in State Budgets

Invest in People- the Key Engine of Growth

In a global economy where the quality of the workforce increasingly determines the standard of living, investing in an educated and healthy population is key to promoting state economic growth.

Invest in Education: One of the largest successes of the recovery plan has been preventing massive teacher layoffs and creating or preserving 250,000 education positions. Additional federal help will be needed to stave off reductions in the coming years, but it is a marked success that despite the largest downturn in post-war history, the core educational infrastructure of our nation has been preserved.

Why this is so important is highlighted by a number of recent studies that emphasize that investments in education have clear dollar returns to state governments.

Each new high school graduate yields a net public benefit of $127,000 or 2.5 times the cost of needed public investments, according to a Columbia Teachers College report. In fact, cutting in half the number of high school dropouts would yield $45 billion in extra tax revenues. High school graduates themselves will earn $117,000-$322,000 more in their lifetimes than dropouts, with female college graduates, for example, earning $800,000 more than dropouts.
As we detailed last spring, early education investments in particular show long-term economic payoffs. A recent Cornell University study found that funds spent in the early education sector have more stimulative effect on the economy than most other spending. Early education programs help parents take advantage of opportunities in the workforce and child care improves parents' productivity at work. One study by the business-backed Committee for Economic Development, estimated that for every dollar invested in preschool, there was an expected return of $2 to $4 in future societal benefits.

Part of youth education is giving them entry-level job training. The federal recovery plan helped revive summer youth job programs across the country, offsetting massive youth unemployment in the private sector. The Idaho Labor Department sponsored its first youth employment program in over a decade.

Support Worker Retraining: While training can't create jobs, it can ensure that workers who are unlikely to be reemployed in their old industry sectors have a chance to be reemployed somewhere else -- and that vibrant industries have the skilled workforce needed to expand in a state.

A Michigan Council for Labor and Economic Growth study found that a five percent increase in college-educated adults would boost economic growth by 2.5% over ten years and real wages by 5.5%. Similarly, studies show that just helping workers get their GED significantly boosts their employment in the long-term. Notably, a study by the National Skills Coalition (formerly the Workforce Alliance) found that even as unemployment mounted in summer 2009, 60% of employers still had trouble finding qualified applicants for the vacancies they did have -- emphasizing the lack of fit in skills between those laid off and the sectors where growth is likely to occur.

In our Dispatch Averting Layoffs and Revitalizing the Manufacturing Economy, we highlighted a range of best practices through which states can both work to avert impending layoffs and use rapid-response to help employees get new jobs or enter retraining programs as quickly as possible. These include Rapid Response programs used by some states to on-site contact with employees before layoffs, accessing training programs like Trade Adjustment Aid, working with communities to tailor training and placement programs, as well as promoting Peer Networks to train groups of workers during layoffs to collect information from fellow workers, help connect them with community services, promote job referrals, and work with community leaders.

Fund Health Care and Support the Safety Net: Health care and other safety net spending is not just a public expense; it is also itself an investment in economic growth. A healthier workforce means greater economic productivity and more years of productive labor. And the health care industry is itself a source of good quality jobs.

A few years ago, a Commonwealth Fund study estimated that labor time lost due to health reasons totalled $260 billion per year. And unhealthy workers often have lower productivity at work. In fact, because people are living and working longer, long-term economic growth is likely to be far higher than many current government projections, according to a recent study by North Carolina State University. "Spending on health care productivity, biomedical research and universal health care should be considered an investment that will eventually lead to increased economic growth," argues co-author Dr. Al Headen. The payoffs are likely to be more taxes paid, more consumer spending and far lower public expenditures on programs like Medicare than currently assumed.

Another remarkable accomplishment of the federal-state partnership in the last year has been not only preservation of basic health care spending for low-income families, but the expansion of SCHIP programs for children and COBRA subsidies for the unemployed. This is in sharp contrast to the recession in the early part of this decade when literally millions of people lost publicly funded health coverage. Maintaining health programs will continue to be a challenge for states -- and new federal funds are a key part of that solution -- but it should be considered a key part of long-term investments in a healthy workforce.

Integrate New Immigrants into the Economy: As we emphasized last week, keeping an estimated 12 million people in the shadows of the economy is bad for them, bad for native workers and bad for the U.S. economy. A recent report estimated that immigration reform that integrates new immigrants into the U.S. economy would create $1.5 trillion in added GDP over ten years and newly legalized workers would increase tax revenues by up to $5.4 billion in the first three years. Another study by the CATO Institute found that legalization would boost the incomes of U.S. households by $180 billion annually by 2019.

Across the board, the goal should be to maximize the productivity of all workers in our economy and produce the most economically competitive workforce in the world.

Resources:
Progressive States Network - Early Education Investments: Economic Importance and Policy Implementation
Columbia Teachers College Center for Benefit-Cost Studies of Education - An Excellent Education for All of America's Children
Workforce Alliance - Job Training is Key to Success of Jobs Bill: Analysis and Recommendations
Progressive States Network - State Action for the Unemployed
National Employment Law Project - Rapid Response Training Overview
Michigan's Human Resource Development Institute - Peer Networks
Commonwealth Fund - Health and Productivity Among U.S. Workers
Council for Labor and Economic Growth - Transforming Michigan’s Adult Learning Infrastructure
Center for American Progress and the Immigration Policy Center - Raising the Floor for American Workers: The Economic Benefits of Comprehensive Immigration Reform
Cato Institute - Restriction or Legalization? Measuring the Economic Benefits of Immigration Reform
North Carolina State University - Study shows health care spending spurs economic growth

Creating a 21st Century Infrastructure in the States

“As a country, we’re deluding ourselves if we think we have put enough into infrastructure," notes the Urban Land Institute. "We’ve been under-investing for 30 years.” As a percentage of gross domestic product, infrastructure spending actually has been declining since 1959. A 2009 American Society of Civil Engineers (ASCE) assessment calculates that $2.2 trillion is needed for infrastructure repairs and upgrades just in the next five years. In contrast, China has committed $259 billion to its plans for building the world's largest high-speed rail system -- with trains going up to 218mph -- and plans to add another half trillion dollars in the next few years for a total investment to $730 billion by 2012. That's more than the entire 2009 federal recovery plan.

The federal recovery plan had $132 billion for infrastructure of all kinds, from roads to transit to smart energy grids, but that's a tiny part of what is needed for the U.S. to retain global competitiveness.

More and Better State Transit: Focus on repairing existing infrastructure, strengthen gateway infrastructure in ports and cities which are the focus of global shipping and travel, and reconfigure suburbs to better integrate regional economies.

Public Transit Investments are a Key Job Creator: One clear lesson from the recovery plan, according to a recent report, is that money spent on public transit yields nearly twice the jobs compared to similar amounts spent on highway projects. This result is due to the fact that public transit spends less money on real land costs and supports vehicle manufacturing and maintenance jobs. It also especially helps low-income workers save money in getting access to jobs where transit integrates communities. One innovative, lower-cost transit approach is bus rapid transit (BRT), which builds separated lanes for larger buses that can move at speeds approaching subway lines. Pioneered in Ottawa, Canada and Adelaide, Australia, similar systems are spreading to Latin America, China, India and Mexico. In the U.S., Los Angeles and Boston have adopted BRT principles and Chicago will be inaugurating BRT service in 2010.
Integrate transit with land use planning: Building transit in the middle of sprawl does little to ease congestion; instead transit funding needs to be linked to development planning that integrates transit with access to jobs and retail. The Denver region is a notable success story in using transit and land use zoning to reclaim its urban downtown, adding a 122-mile light rail system, instituting a Bus Rapid Transit system to link to nearby Boulder, and linking the urban core to multiple town centers in the surrounding suburbs.
Strategically Apply User Fees to Fund Infrastructure: The Urban Land Institute emphasizes that more of the costs of transit infrastructure will inevitably need to be borne by consumers in the form of higher gas taxes, tolls and congestion pricing in urban areas. This needs to be combined with targeted tax relief to ease the burden on low-income families. The reality is that gas taxes in the U.S. are far smaller than European economic competitors, who use those revenues to fund far more robust transit upgrades across their continent.

Broadband and Smart Grid Investments: Despite the U.S. playing a key role in creation of the Internet, a study by the International Telecommunications Union found that the United States now ranks 17th in global broadband penetration. Lack of affordable broadband access undermines the international competitiveness of our communities and workforce. The $7.2 billion of direct broadband funding in the federal recovery plan and pockets of other funding for digital infrastructure throughout the ARRA also emphasized broadband as a catalyst for spurring job creation and economic growth.

A number of state legislators have created Broadband Strategy Councils to focus on using those and internal state funds to increase access to and adoption of affordable broadband. Beyond investing in physical infrastructure, increasing digital literacy is a key investment as well. During the 2008 legislative session Washington state passed SB 6438, which created a statewide high-speed Internet development process and established the Community Technology Opportunity Program (CTOP) that will provide resources for capacity-building and grant-giving to Community Technology programs that provide hands-on technology access and training to residents.

Water Systems: Many cities and regions are using old water systems desperately in need of repairs and upgrading. Nationwide, the U.S. Environmental Protection Agency (EPA) projects a $224 billion funding gap between 2000 and 2019 between what states are spending and federal requirements for water quality. Part of the solution are new policies to reduce wasteful water use, since per capita domestic water consumption in the U.S. is more than twice as much as most global competitors-- and more than four times the use by citizens of Great Britain and China.

In California, where some water bills can approach $500 a month, jurisdictions began to require retrofitting homes on resale. Development needs to be restricted in areas lacking water systems, since such growth just dumps costs on government and leads to underfunding water systems in established areas.

Infrastructure Projects already approved: Some notable examples of integrated infrastructure investment programs around the country include:

Illinois Department of Transportation has $3.1 billion in committed projects in 2009. In addition, Illinois is creating a major “inland port” with the development of Union Pacific's new intermodal facility in Joliet that will create an estimated 7,000 jobs.
Iowa's I-Jobs program approved last year has created a three-year, $830 million investment in Iowa’s infrastructure using existing gaming revenue including public improvements, community colleges, veterans homes ($285 million), disaster recovery and prevention ($165 million), improving transportation infrastructure ($115 million), rebuilding universities ($115 million), improving environment and water quality ($80 million), and enhancing telecommunications and renewable energy ($35 million).
Oregon's Job and Transportation Act invests more than $1 billion to address all sectors of Oregon's transportation system, including roads, bridges, bike and pedestrian facilities, mass transit, railroads, ports and airports. Green aspects of the bill included multi-modal transportation, increased transit funding, planning for greenhouse gas reduction scenarios, a congestion pricing pilot project, and an urban trail fund for non-motorized vehicles and pedestrians.

The key to long-term growth is moving infrastructure investments from one-off projects towards integrated investments that connect them into a holistic plan for growth. As Robert Puentes of the Brookings Institution said this past year at a Congressional hearing, "the problem is that there is too little integrated decision making that crosses disciplines and joins-up solutions in infrastructure investments." To achieve maximum effectiveness, transit and other infrastructure investments need to be coordinated not only with each other, but also with land use and housing decisions.

Next Week: State Job Creation Strategies Part II: Supporting Innovation, Industrial Clusters & Green Job Creation

Resources:
Urban Land Institute - Infrastructure 2009: Pivot Point
American Society of Civil Engineers - Report Card for America's Infrastructure with State and Local Report Cards
U.S. PIRG, Smart Growth America, CNT - What We Learned from the Stimulus: And how to use what we learned to speed job creation in the 2010 jobs bill
Progressive States Network - Making Broadband a Key Part of States' Economic Recovery

Focus on Jobs: The Next Step in National Economic Recovery and State Fiscal Relief

Altaf Rahamatulla — Thu, 10 Dec 2009 13:01:45 -0500

On Tuesday, December 8th, President Barack Obama delivered an address to the Brookings Institution on the need for increased focus on the job crisis that is affecting so many working families across the country. His proposals included key programs administered by the states, such as investments in infrastructure, clean energy investments, the extension of unemployment insurance, and ensuring that states are not forced to lay off teachers, police, and other vital service providers. This would be complemented by direct federal help such as tax breaks for small businesses and extension of COBRA subsidies for the unemployed.

The President stated, "[f]or even though we've reduced the deluge of job losses to a relative trickle, we are not yet creating jobs at a pace to help all those families who've been swept up in the flood. There are more than 7 million fewer Americans with jobs today than when this recession began. That's a staggering figure, and one that reflects not only the depths of the hole from which we must ascend, but also a continuing human tragedy." The speech followed a job summit the President convened last week that featured CEOs, small business owners, labor leaders, and nonprofits sharing insights on methods to foster economic growth.

Reports Detail the Jobs Crisis and the Need for Expanded Recovery Programs: While a new Congressional Budget Office (CBO) study documents that the recovery plan has created or saved as many as 1.6 million jobs, millions of unemployed Americans are still in need of help.

This need for new jobs highlighted by the President is echoed by a recent analysis by the Economic Policy Institute (EPI), entitled Jobs Crisis Fact Sheet. Among their findings:

15.4 million Americans are unemployed;
38.3 percent of unemployed have not had a job in over six months;
8 million jobs were lost during the recession, which includes 1.6 million lost in construction and 2.1 million lost in manufacturing;
1 in 10 Americans are unemployed;
1 in 6 Americans are underemployed;
15 states are experiencing double-digit unemployment.

These bleak figures are exacerbated by state fiscal uncertainty that is forcing lawmakers to consider cuts to vital programs, such as education and health care. As the Center on Budget and Policy Priorities (CBPP) indicates in Additional Federal Fiscal Relief Needed to Help States Address Recession's Impact, total state deficits in FY2011 and 2012 will likely exceed what can be covered by ARRA funding by over $260 billion. Furthermore, "[p]resuming they will get no more fiscal relief, states will have to take steps to eliminate deficits for state fiscal year 2011that will likely take nearly a full percentage point off the Gross Domestic Product. That, in turn, could cost the economy 900,000 jobs next year."

Mark Zandi, chief economist at Moody's Economy.com, expressed a similar sentiment in an interview with Stateline.org: "I think it’s vital states get additional stimulus. If no more aid is forthcoming, then (states will) be cutting jobs, programs and raising taxes… because their fiscal situation continues to deteriorate more rapidly. Tax revenues are still falling at a very rapid clip. So states are going to have a huge hole beginning in 2011 when the current stimulus runs out. I suspect they’ll be cutting spending and raising taxes long before reaching that cliff."

For the unemployed specifically, the National Employment Law Project and the Center for American Progress highlighted in their report Keeping a First Line of Defense for the Jobless that benefits for the unemployed provided by the ARRA recovery plan, from extended unemployment benefits to COBRA health care premium subsidies, have been critical in providing help to jobless individuals and injecting cash into communities hardest hit by unemployment. The report outlines how these programs have helped the economy and why the programs should be renewed.

Renewed Support for States and the Unemployed Needed: Accordingly, any federal job creation and economic growth plan must be accompanied by further fiscal relief for states. Progressive States Network, along with a wide range of allies, have called for a second round of federal stimulus to assist burgeoning state budget gaps.

Resources:
Center on Budget and Policy Priorities - Additional Federal Fiscal Relief Needed to Help States Address Recession's Impact
Center on Budget and Policy Priorities - New CBO Report Finds Recovery Act has Preserved or Created up to 1.6 Million Jobs
The Economic Policy Institute - Jobs Crisis Fact Sheet
The Economic Policy Institute - Plenty of need for a second stimulus
NELP and Center for American Progress - Keeping a First Line of Defense for the Jobless
Progressive States Network - Job Losses and State Fiscal Crises: Time for More Federal Stimulus Spending
Stateline.org - Economist Mark Zandi: On stimulus, jobs, state finances, inflation, and the year ahead
The White House - The Big Picture and Some Next Steps on Jobs
The White House - President Obama Announces Proposals to Accelerate Job Growth and Lay the Foundation for Robust Economic Growth

Assuring Accountability and Equity in Recovery Spending

Nathan Newman — Mon, 01 Jun 2009 12:20:48 -0400

In January, Progressive States Network highlighted the many reasons Why States Need to be a Focus for Any Economic Recovery Plan. Without help, states would catastrophically slash both spending and payrolls, deepening the economic crisis in communities across the nation, while undermining the investments needed to revive the economy in the long-term.

But we have also emphasized that any stimulus spending has to be tied to increased accountability and transparency in spending decisions, especially by government contractors who often operate like a shadow government with little oversight. One key reality, as this Dispatch will highlight, is that those most in need often don't receive help from government spending without transparency and accountability measures built into the rules. While the recent federal recovery plan made real strides in expanding such accountability, additional measures are still needed if the recovery plan is going to deliver real equity in our economic recovery.

- Assuring Recovery Funds Address Immediate Crisis

- The Link Between Accountability and Equity

- Demanding Transparency and Accountability in the States

- Conclusion

Assuring Recovery Funds Address Immediate Crisis

As the Center for Budget and Policy Priorities outlined in a recent report, federal aid is covering roughly 30-40 percent of state budget shortfalls. Virginia, for example, has been able keep open three mental health facilities, reverse a planned cut in Medicaid payments, lessen reduction in universities aid, avoid a major education budget cut, and avoid laying off an estimated 310 deputy sheriff positions.

For the economy, some of the most immediate money flowing into states is via the expansion of food stamps benefits in the recovery plan: 32.5 million people in April got a 13.6 percent monthly increase in benefits, averaging about $20 per person. Since the federal government pays 100% of food stamp benefits, states that vigorously sign up people who qualify can stave off some need to use other benefits directly funded by the states. While many states are stepping up outreach efforts, only 60 percent of eligible Americans received food stamps in 2004, the most recent year data are available. Signing up more people is a direct way to expand federal stimulus spending in states.

Assuring States Maintain Spending to Fuel Consumer Demand: While the federal government is dramatically expanding support for programs like education, food stamps, and Medicaid for state governments, the key caveat is that states can't use the funds just to paper over state cuts for the programs. In using state fiscal stabilization funds, states must assure that in fiscal years 2009, 2010, and 2011, they will maintain state support for elementary, secondary and public higher education institutions at fiscal year 2006 levels. The goal is to assure that the federal stimulus to expand the economy is not just undermined by state governments cutting spending -- avoiding what economist Paul Krugman calls "fifty Herbert Hoovers" promoting austerity economics and deepening the economic downturn.

"States Rights" versus Accountability: Some state leaders like Texas Governor Rick Perry have tried to argue that any conditions on federal money is a violation of states rights; Perry even supported a resolution asserting "sovereignty" for the state of Texas and arguing all federal legislation that "requires states to pass legislation or lose federal funding be prohibited or repealed." It is a bit strange to see some conservative leaders -- who usually argue that government spending should be tied to reciprocal responsibility by recipients -- suddenly demand that federal dollars be a blank check with no accountability for states receiving it. Of course, even most conservative leaders have agreed to the accountability measures required to qualify for funding under the federal recovery act. Ironically, South Carolina Governor Mark Sanford -- who is seeking to reject $700 million in education spending approved by his own state legislature -- has argued that federal courts, rather than state courts which are not seen as sympathetic to his position, should decide whether the governor can prevent the state from spending the money.

Fight over Unemployment Funds: That the strongest resistance to federal funds has come over funding unemployment insurance for many of the poorest unemployed workers is evidence that the fight over "states rights" is actually a fig leaf for ideological attacks on those most in need. As the National Employment Law Project has documented, incentives in the recovery act to encourage states to extend unemployment benefits to poor and part-time workers often excluded from unemployment systems, has been a major success of the recovery plan, with states across the country reforming their laws to improve equity in their systems. While both Republican and Democratic leaders in many states have readily expanded such benefits, it is a few ideologues on the right, such as Perry in Texas or Gov. Bobby Jindal in Louisiana, that have used the unemployed as whipping boys for their rhetoric. Even as many families continue to suffer post-Katrina in the state, Jindal chose to forego $100 million in federal unemployment dollars, as legislators have labored to override his opposition to unemployment insurance modernization. As Dan Lavoie of Policy Link argues, "This is a looming disaster for folks who’ve had too much disaster in their lives already."

Resources:
ProPublica - Stimulus Infrastructure Funding Short-Changes States With High Unemployment
Center for Budget and Policy Priorities - Federal Fiscal Relief for States Is Working As Intended: The Cases of New York and Virginia
U.S. Department of Education - Guidance on the Maintenance-of-Effort Requirements in the State Fiscal Stabilization Fund Program
National Employment Law Project - Modernizing Unemployment Insurance--The American Recovery and Reinvestment Act
Policy Link - Thousands to Protest Jindal Stimulus Rejection

The Link Between Accountability and Equity

The exclusion of many of the working poor from unemployment insurance systems is just part of the broader problem of equity in in state spending and assuring that the federal recovery plan is directed to reviving communities hardest hit by the global economic downturn. Unfortunately, state-by-state analysis of federal transportation recovery funds by the independent research organization ProPublica finds that "the higher a state’s unemployment, the less money it gets." States with the most people out-of-work are seeing fewer job openings on transportation projects.

Within states, the same phenomena seems to be happening. By basing dollars spent on transportation money on whether a community has "shovel ready" construction projects, the law has bypassed some communities with the highest unemployment. In Indiana:

An analysis of Indiana's per-capita transportation stimulus dollars committed through this month shows that of the state's 10 counties with the highest unemployment rates, three have received no funding, and four have received less than $37 per person, the median amount given to counties that did receive funding.

Building Equity into Transportation Budgets: Richer communities often already had more money in the pipeline for new projects, so they had "shovel-ready" projects ready to be funded. As a report by Policy Link and Transit Equity Network argues, "There is serious concern that the timeline for spending recovery dollars will reinforce historic inequities by concentrating funds on ex-urban highway projects versus maximizing low-income community benefits through investment in transit, pedestrian, and bicycle infrastructure." As report co-author Radhika Fox, an Associate Director at Policy Link argues:

Historically, the deck has been stacked against transportation projects that can improve the lives of low-income people and people of color. To ensure that the federal recovery package does not continue this imbalance, advocates and community leaders must be ready and prepared to fight to ensure their communities get a fair share of the recovery dollars.

“Accountability in government spending is job number one when it comes to the stimulus,” said Laura Barrett, national policy director for the Transportation Equity Network. “The nation's governors must make sure that all stimulus-spending targets distressed communities and brings jobs to low-income people, women and minorities. The public needs to know who got the jobs and who can be held accountable."

Lack of Data Has Held Up Addressing Inadequate Teaching in Poor Schools: Transparency in spending decisions is also the key to actually making sure poor schools receive the help they have usually been denied in the past. The stimulus measure’s provision on equitable distribution of teachers is identical to language in the federal No Child Left Behind Act that requires states to put plans in place to ensure that poor and minority students aren’t taught disproportionately by out-of-field, inexperienced, or unqualified teachers. Not much momentum on this goal was made under President George W. Bush, some experts say, in part because of states' archaic recordkeeping, a former Bush administration official indicated. “It was difficult to move the needle on teacher-quality efforts in the states at the time,” said M. René Islas, who oversaw the issue at the Education Department between 2002 and 2006. “They lacked the data systems and the incentive.”

Greater accountability and greater transparency in data for the recovery plan is a necessary step in making it possible for low-income and minority communities to be able to demand equity in the distribution of funds.

Resources:
Policy Link and Transportation Equity Network - An Engine of Opportunity: A User’s Guide to Advocate for Transportation Equity in the 2009 Recovery Act
Education Week - Stimulus Bill Spurs Focus on Teachers: Language on Fair Distribution, Effectiveness Offers Policy Clues

Demanding Transparency and Accountability in the States

Recognizing the need for broader accountability in the federal recovery plan, advocates have formed States for an Accountable and Transparent Recovery. In this effort, Progressive States Network has joined with a number of key allies -- including the Apollo Alliance, Center for Community Change, Common Cause, Consumer Federation of America, Good Jobs First, National Employment Law Project, National People's Action, OMB Watch, Partnership for Working Families, Policy Matters Ohio, Right to the City, Smart Growth America, Transportation Equity Network, U.S. PIRG, and Wider Opportunites for Women -- to work for both greater equity and accountability as the recovery plan is implemented in states across the country.

Limits of Federal Transparency Rules: The ARRA includes a wide range of accountability provisions and created a Recovery Accountability and Transparency Board. President Obama has announced that Vice President Joe Biden will “oversee the Administration’s implementation of the Recovery Act’s provisions." The Vice President issued his first quarterly ARRA progress report on May 13.

President Obama has made a broad commitment to create transparency for federal spending, but the problem is that as funds move from federal government to state to local government to hired contractors, the data to assure accountability starts to disappear. As the Washington Post highlighted in a recent article:

The Office of Management and Budget requires stimulus spending to be reported by primary and secondary recipients, but in many cases, this means the reporting will stop short of the contractors and subcontractors that are hired to do the work. For instance, if a state allocates transportation money to a local authority, such as Metro, that authority would not necessarily have to disclose what contractors were hired.

Earl E. Devaney, the Interior Department Inspector General who has been placed in charge of stimulus oversight, admits, "The law doesn't require [recipients] to go to the depth that people imagine it does."

State Accountability Sites: The States for a Transparent and Accountability Recovery site has a state-by-state review of accountability practices in each state, including overviews of state-level recovery act websites and other government-run accountability sites, how coordination and oversight for the recovery plan is being administered in each state, the in-state policy debates on the recovery plan, as well as a list of state watchdog groups and other resources. Some states are providing greater transparency than others, yet almost none yet provide the level of detail needed to monitor either the overall equity in distribution of funds or what contractors are really doing with the funds they receive.

Expanding Transparency and Accountability in the States: As PSN outlined in February, there are a number of models for state leaders seeking to expand transparency in their recovery and state contracting systems. These included:

Good Jobs First's model language for economic subsidy data collection
Contractor and subcontractor data collection language from Oregon's proposed HB 3366
Online transparency language from Massachusetts' proposed Act Relative to Transparency in State Revenues and Expenditures

As we emphasized, not only do such accountability measures assure that money goes where intended, they can actually save states money by streamlining spending decisions and eliminating spending abuses that thrive in secrecy.

Funding Transparency: One area where the federal government can step up is in making funding of state accountability systems a greater priority. An April Government Accountability Office report found that state funding for oversight was a problem:

Officials in most of the states and the District expressed concerns regarding the lack of Recovery Act funding provided for accountability and oversight. Due to fiscal constraints, many states reported significant declines in the number of oversight staff—limiting the ability to ensure proper implementation and management of Recovery Act funds.

If the feds are going to spend hundreds of billions of dollars on the recovery plan, providing the funds to protect and expand the capacity of states to build better accountability systems would be money well spent.

Resources:
Progressive States Network - Transparency and Economic Recovery: What States Are Required To Do and Why They Should Do It
States for an Accountable and Transparent Recovery
Coalition for an Accountable Recovery
Education Week - Initial Aid Is Puzzle to Track: Transparency Proves Elusive as Stimulus Funds Flow
ProPublica - Tracking States' Spending Sites

Conclusion

Accountability and transparency are not just "good government" issues. Without such measures, money inevitably flows to those who already have political and economic power. Only with clear accountability rules -- and data collected to assure such rules are being implemented -- will we see recovery funds go to those most in need and the money used to address the real problems of economic inequality in communities across our country.

Helping Poor and Working Families Build Financial Assets

PSN — Mon, 04 Aug 2008 08:32:00 -0400

By one estimate, the federal government spent over $367 billion in 2005 alone on subsidizing Americans' retirement savings and tax breaks to build up other assets like buying a home. Unfortunately, those subsidies go overwhelmingly to those Americans who already have high-incomes; almost none of it goes to the poorest Americans who need the most help building the financial assets that can lead to long-term economic opportunities and security.

One key problem with traditional anti-poverty programs is their concentration on merely transfering a small amount of day-to-day income to poor families, while failing to encourage, or in some cases actively discouraging, the accumulation of wealth.

Yet, as this Dispatch will outline, some states are taking action to encourage the working poor to accumulate the financial assets that can help them escape poverty, and help their children afford college in later years. These key steps have been removing asset limits from existing benefit programs, creating savings vehicles with real economic incentives that help the working poor, and initiating college savings programs that similarly benefit the poor as well as high-income families.

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Eliminate Assets Tests on Government Benefit Programs

The first step states need to take, which many are increasingly doing, is to stop actively discouraging the poor from saving and investing. States have traditionally limited the assets that TANF, Food Stamps and Medicaid recipients can have, severely limiting those families' ability to permanently escape poverty and dependency on those programs.

The existence of an asset limit, no matter how high, sends a signal to program applicants and participants that asset-building should be avoided. Most rules are also confusing for the working poor, who may face one asset limit for medical coverage, a different one for nutrition assistance and a third for cash assistance. There are well documented examples of caseworkers advising recipients to get rid of savings or retirement accounts to avoid problems.

State Freedom to Eliminate Asset Ownership Limits: States are free to set their own asset limits under TANF, Medicaid and SCHIP programs, and, while states cannot completely eliminate the asset limit on Food Stamps, under the 2002 Farm Bill, they can create "categorical eligibility" for Food Stamps in some areas for anyone qualifying for a program like TANF for which the state has eliminated asset limits.

At minimum, states should raise asset limits and index them to inflation. They can also exempt certain classes of assets from benefit limits, such as retirement savings, vehicles, homes or Earned Income Tax Credit refunds. For example:

Colorado in 2006 (see SB 134) expanded its asset limit for TANF from $2,000 to $15,000 and exempted retirement, education and health savings accounts from the limits altogether.
At least forty states have exercised the option to exclude at least one vehicle, and twenty states exclude all vehicles.
Most states have no asset limits for receiving childrens' health care benefits. Only three states -- Idaho, Texas and Oregon -- had asset limits for their programs as of 2007.

For most states, eliminating asset rules has been a bipartisan effort. Ohio was the first state to abolish asset limits in TANF: it did so in 1997, when senior Republican Representative Bob Netzly proposed the abolition. Eliminating such asset rules not only help the recipients but save states money by eliminating wasteful paperwork. Eliminating Medicaid asset limits in Oklahoma resulted in savings of close to $1 million.

The two states that have eliminated asset limits for their TANF programs -- Ohio and Virginia -- have seen declines in caseloads with no reports of high-asset, low-income individuals abusing the system. The reality is that work requirements and other welfare rules mean few people with wealth would game the system to gain access to benefits, while eliminating the asset tests is actually a tool to reduce caseloads by helping families gain financial independence and permanently escape poverty.

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Individual Development Accounts

Beyond removing disincentives for the poor to save, states have increasingly created active incentives through Individual Development Accounts (IDAs).

Thirty-nine states have had a state-supported IDA program at some point and eighteen states funded their IDA programs in 2007. 540 community-based organizations help to run these programs across the country. They are funded either through general funds, TANF, Community Development Block Grants, tax credits or housing trust funds.

How IDAs work: IDAs are savings accounts matched with state govenrment contributions that are targeted to low-income persons. Withdrawals are typically restricted to the purchase of assets, such as buying a home, pursuing postsecondary education and training, and starting a small business. In some cases, other uses such as the purchase of a car, a computer or other work-related investments are also permitted. Most IDA programs match contributions by low-income families through a blend of public and private funding.

Generally, state IDA programs involve a partnership between a state agency, nonprofit service providers, and financial institutions. Once a state authorizes an IDA program through a legislative or regulatory process, it designates a state agency or non-governmental entity to serve as the program administrator and steward. Most state programs are administered jointly by a state agency and a nonprofit.

CFED (Corporation for Enterprise Development), for example, argues for a few key policies to make IDAs effective:

Sufficient funding, defined as at least $200 per low-income resident.
Stable funding built into the budget, ideally with a dedicated funding source.
A state agency steward which oversees the program, ideally one tied to economic development or banking rather than just part of a human services department.

One of the best examples of an existing IDA program is in Indiana. Created in 1997, it is one of the oldest IDA programs in the country. With HEA 1075 enacted in 2007, the program now matches participant savings of up to $400 per year with funding of $1.6 million in FY 2008.

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Support College Savings Plans

One crucial area where state action can make a difference in improving economic mobility is in strengthening college savings plans. While the federal government created the federal tax incentives for 529 plans, states administer the plans. This administrative control gives states the ability to make the plans more effective in helping lower-income workers increase their savings.

Unfortunately, most states do not tailor plans to effectively help lower-income workers, instead it is still upper-income savers who benefit most from the 529 incentives. However, due to significant criticism that 529s are structured to largely benefit high-income savers, a few states have taken action to make these college saving accounts more useful for lower-income families.

State 529 Programs that Help the Working Poor: Instead of just offering tax deductions, which help individuals in higher tax brackets the most, six states -- Colorado, Louisiana, Maine, Michigan, Minnesota, and Rhode Island -- directly match savings in 529 plans. Arkansas and Texas enacted legislation in 2007 to add state matching funds to their programs.

Maine's NextGen program is one of the best. It creates a 529 account with an initial $50 for each newborn, with low- and moderate income families receiving an initial $200 deposit and an annual 50 percent match, up to $200, on all deposits for those making less than $75,000 per year.
Rhode Island's CollegeBoundfund matches contributions of $500 per year at a rate of 2 to 1 (with $1000 maximum per account) for families below 200% of the poverty line and a 1:1 match for those between 201% and 300% of the poverty line.

Along with larger initial state contributions and matching funds, CFED and other advocates such as the Center for Social Development suggest additional features to help low-income families save for college, including automatic enrollment of all children and strong outreach to educate families about the availability of the funds.

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Conclusion

The sad reality is that most government subsidies for savings and retirement go to the wealthy. States, however, are beginning to recognize the misallocation of resources that results from those priorities. While most efforts to help the poor accumulate financial assets are still dwarfed by subsidies for the wealthy, a number of states, by eliminating asset tests for benefits, funding IDAs and providing matching contributions for 529 college savings funds, are beginning to move towards a system that gives the working poor real help in achieving financial security over the long term.

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Building a Better Measure of Poverty Rates

Nathan Newman — Thu, 17 Jul 2008 17:59:11 -0400

States don't really know how many of their residents are poor. The current federal poverty measure uses a forty-year old, widely criticized methodology. It neither accounts for many of the resources poor families receive from the government, such as Food Stamps and the EITC, nor does it, conversely, factor in many additional expenses the poor face that are not accounted for in the federal measure, such as transportation costs, child care and local costs of living. To address these problems, New York City has established a new set of measures of what income a family needs to provide for basic necessities. Instead of the $16,242 that the federal government assumes a parent and two children can live on, the new NYC measure assumes the family needs at least $21,702 not to be poor.

While the new measure, developed by the city's Center for Economic Opportunity (CEO), does not immediately change current funding for local programs, it has led to a few preliminary findings that will help policymakers better understand the dynamics of poverty:

The NYC poverty rate using the new measure is 23%, opposed to 18.9% using the federal rate.
Under the new measure, fewer people are living in extreme poverty (below 50% of the threshold), just 6.5% compared to 7.4% under the official measure.
Under the new measure, the poverty rate for the elderly increases significantly, from 18.1% under the federal measure to 32% under the new one.

"If we are serious about fighting poverty, we also have to start getting serious about accurately measuring poverty,â€? said New York City Mayor Michael Bloomberg. "We canâ€™t devise effective strategies for tackling poverty until we understand its full dimensions.â€? Inspired by New York City's example, the U.S. Congress is holding hearings on July 17th on "Establishing a Modern Poverty Measure" to examine what needs to be done nationally to better measure poverty rates.

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Welfare "Reform": Ten Years Later

PSN — Mon, 18 Sep 2006 09:24:08 -0400

It's now ten years since the 1996 welfare law promised to end "welfare as we know it." That goal may have been accomplished, but the results have been decidedly mixed, both for poor families and for state lawmakers coping with changing federal mandates.

As this Dispatch will detail, it was less the 1996 law than other changes in state and federal law that have given poor families any chance to thrive -- and still, many lives have been made worse because of the 1996 changes in welfare law. But states are finding innovative ways to expand the anti-poverty agenda in the wake of those changes.

Evaluating the Results of Welfare Law Changes

Evaluating the results is complex, but the basic facts are clear (see resources below for data sources, especially the Urban Institute's "A Decade of Welfare Reform: Facts and Figures"):

While the booming economy in the late 1990s made initial cuts in welfare case loads relatively easy as job growth surged, the real test came when the 2001 recession hit. And the result was that, after a reduction in poverty and some gains in income by the poor in the 1990s, child poverty began climbing again in the last few years.
And the new Temporary Assistance to Needy Families (TANF) program in many cases was no longer there to help. Where there were 4.6 million families receiving cash benefits in 1996, only 2.1 million were receiving benefits by 2002 -- and estimates are that over half that reduction (57%) came from cutting off families still in need but no longer receiving help from TANF programs.
Of families receiving welfare, the good news was that more were finding work: 39% finding some work in the preceding 12 months in 2002 versus 31% back in 1997. But a large number of single-adult families had no work and no longer received any help. By 2002, one in five former welfare recipients had no job and no cash welfare, a total of 1 million poor single mothers in this "no work, no welfare" group across the country.
A Johns Hopkins study of current and former recipients in three cities found that when all former TANF recipients are considered â€” those with jobs and those without jobs â€” the average income gains of those who left TANF were about the same as those who had not left the TANF program.
Even most families previously on welfare that have found work have ended up in dead-end jobs, with median hourly wages hovering around $8.00 in 2002, and only one-third of these workers have health insurance through their jobs. As the Urban Institute writes, "Research suggests that many of these families will never 'grow out' of low-income status with age and experience."

Some apologists for these meager results of welfare "reform" -- and for the decided suffering of those left worse off -- concentrate on the benefits to the relatively small number of families that have moved from welfare to well-paying jobs.

While those gains are laudable, these mixed results pale compared to broad success of the often-derided "war on poverty" launched in the 1960s. It's worth remembering that between 1959 and 1973, the percentage of people living in poverty in the United States was cut in HALF--falling from 22.4% of the population down to just 11.1%. (See this table and graph). As aid to the poor was cut under the Reagan administration, poverty rates jumped to over 15% in the 1980s and early 1990s, only to fall a slight amount in the last decade. With 12.6% of the American population still in poverty in 2005, anti-poverty gains in the last ten years have not come close to matching the success of American liberalism a generation ago.

And as will be discussed in the next section, if some families are doing better post-1996, it has less to do with the 1996 welfare law than with states and the federal government stepping up with alternative spending for working poor families.

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How Progressive Spending Eased Implementation of 1996 Law

In talking about gains for the working poor in the 1990s, many pundits focus on the 1996 welfare law, but more significant was the expansion of the Earned Income Tax Credit (EITC) in 1993, along with state EITCs enacted as well in the last decade, the passage of federal and state SCHIP laws expanding health care for children, expanded child care subsidies for working families, and the raising of the minimum wage in states across the country. By 2002, federal and state governments were spending $131 billion on Medicaid, SCHIP, food stamps, child care subsidies and the EITC, 28 percent more than in 1996 in inflation-adjusted dollars.

EITC: The federal EITC was $39.6 billion in 2005 and was supplemented by state EITCs in nineteen states, a significant factor in easing the lives of the working poor, especially in conjunction with increases in the minimum wage.

Health Care: Making it easier for families in low-wage jobs without health insurance, most states now subsidize health care for children in families up to 200% of the poverty line. Only 22 percent of families with subsidized health coverage return to TANF, while 33 percent of families without Medicaid or SCHIP return to the program- highlighting the gains from increased spending on health care for the working poor.

Child Care: Along with new child care subsidies, TANF dollars increasingly help fund child care, a crucial support for former welfare recipients entering the workforce. Studies show that 28 percent of former recipients who did not receive government child care assistance return to TANF, compared with only 20 percent of those who receive child care assistance.

One other welcome change is that all but three states have changed their rules to allow TANF recipients to earn more income without losing TANF benefits. Because of these changes, by 2003 a single parent with two kids could work 20 hours a week at the federal minimum wage and still receive TANF benefits in most states.

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The New Federal Threat to TANF Recipients

Unfortunately, just as many states have begun expanding support for the working poor after the budget constraints due to the post-2001 recession, new federal TANF rules mandated by last fall's Deficit Reduction Act (DRA) are further restricting state's flexibility in administering TANF in their states.

Many programs that help recipients get training or education to improve their chances of getting a job will no longer qualify as welfare-to-work activities; recipients will be limited to 12 months of vocational educational training and no more than 30 percent of a state's welfare-to-work participants will be allowed to participate in such programs. As the Center on Budget & Policy Priorities (CBPP) notes, the incentives are perverse, since "The cheapest and easiest way for a state to meet the new work rules and avoid fiscal penalties is to assist fewer poor families."

Some states like Georgia are already taking this punitive approach. Between 2000 and 2005, welfare rolls in Georgia fell from roughly 30,000 recipients down to fewer than 8,000, despite the fact that most families that leave Georgia's TANF program have not found employment.

However, other states are pursuing alternative strategies that accommodate the new rules without hurting the poor. Arkansas is dealing with the regulations by keeping more working people on the rolls after they get jobs, thereby increasing the overall "work-participation rate" from 28 percent to nearly 45 percent this year. California and some other states are moving those least likely to get jobs, such as those with mental and physical disabilities or those with disabled children, into non-TANF state programs so that they don't count against their work-participation rates.

The Center on Budget and Policy Priorities and CLASP have developed a broad set of strategies for states to implement the new regulations in ways that benefit all working families rather than punishing the families whose parents cannot find work.

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Conclusion: The New Progressive Anti-Poverty Agenda

In some ways, the greatest benefit from the 1996 welfare law was that it seems to have diminished the rhetorical attacks on the poor and encouraged the growing alternative federal and state spending to combat poverty. Instead of attacks on "welfare queens" and other racially-tinged attacks, there has emerged a real debate on the rise of economic inequality in America and how best to help all working families, including those at the bottom of the economic system.

The debate on poverty is increasingly merging into the broader debate on how to create decent-paying jobs for all Americans and how to provide the health and child care support that all families need. The recent success of campaigns to raise the minimum wage highlights the broad support by the public for promoting a living wage for the working poor, just as the growing debate on universal health coverage shows similar public support for ending the gaping hole in health access for many working families. The result is a new progressive anti-poverty agenda that links a helping hand for the poorest in our society with campaigns to assure a social safety net for all families looking for help in coping with job dislocation and loss of health care coverage in our changing economy.