Understanding Welfare Reform in Nevada

Robert Rector

Prior to the election, Congress passed historic welfare reform legislation which President Clinton reluctantly signed into law. Regardless of his promises to correct the "flaws" of the bill, Nevada should have a basic understanding of how the legislation changes the current system.

The legislation impacted four major areas of welfare:

1. Eliminating Perverse Financial Incentives for State Government.

The Aid to Families with Dependent Children (AFDC) program is currently funded on an entitlement basis. This means that the more persons a state enrolls in AFDC the greater will be the funds received from the federal government. Conversely, if our governor reduces the number of persons on welfare, federal funding to our state is reduced. Clearly the old entitlement funding structure of AFDC created perverse incentives for state government, penalizing states which reduce dependency and rewarding states for allowing their welfare caseload to grow. The welfare reform legislation will eliminate these perverse incentives; it creates a new funding system in which Nevada will be given a fixed dollar grant which will be gradually increased from year to year. If a Nevada reduces its AFDC caseload its federal grant will not be cut. Instead, the state will be permitted to keep surplus federal funds that are generated by caseload reduction and apply those funds to other efforts to aid the poor. On the other hand, if a state permits its AFDC caseload to grow rapidly, the state, not the federal government, will bear the added cost.

2. Slowing the Growth of Welfare Spending.

Contrary to reports in the press, the bill will not cut welfare spending. Instead it merely slows the rate of growth in spending. There are seven major programs affected by the legislation: Aid to Families with Dependent Children; Food Stamps; Social Services Block Grant; School lunch and other child nutritional programs; Foster Care; and the Earned Income Tax Credit (EITC). Under prior law aggregate spending in these programs was scheduled to grow by nearly 50 percent over the next seven years (an annual growth rate of roughly 6 percent). The reform bill will slow the rate of growth to around 35 percent over seven years (an annual growth rate of 4.5 percent). Thus the reform will state permit future aggregate spending in these programs to expand at faster than the rate of inflation.

3. Work Requirements.

Under the reform bill, welfare will no longer be a one way hand out. Specified percentages of the AFDC caseload will be required to take private sector jobs, or if private sector jobs cannot be found, will be required to perform community service work in exchange for welfare benefits. When working in a community service job, the welfare recipient must be in a "pay after performance" system: this means the beneficiary will not receive AFDC benefits until after the community service work has been satisfactorily completed. If the individual fails to perform the prescribed number of hours of work, benefits will be reduced pro rata. However, because of numerous loopholes, the actual number of recipients who will be required to work is quite low. For example, by 1999 the typical state will be required to have only 18 percent of the AFDC caseload working.

4. Reducing Illegitimacy.

At the present time, one third of all American children are born out of wedlock. The collapse of marriage and the rise of out-of-wedlock births is the cause of growing welfare dependency, as well as crime, and many other racial problems. The welfare reform bill contains three provisions to combat illegitimacy. First, it will focus the attention of state governments on the illegitimacy problem by requiring each state to set numeric goals for reducing illegitimacy over the next ten years. Second, it will provide extra bonus funding to states which reduce illegitimacy without increasing abortion. Third, the bill creates a new program to provide abstinence education.


While there are weaknesses in the reform legislation, particularly the low level of required work, the bill is a significant step in the right direction and does represent the largest in change in the welfare since the early years of the War on Poverty.