State customization of Social Security remedies the poverty drivers that are unique to each community.

For the past 30 years, the most furious devolution debate has involved the federal welfare system. The 1996 reform—which replaced the open-ended Aid to Families with Dependent Children (AFDC) program with the Temporary Assistance for Needy Families (TANF) block grants to states—exposed the radical differences between conservative and liberal approaches to poverty relief that make a case for state customization and experimentation based on local values. AFDC was the first broad national welfare entitlement (it was part of the 1935 Social Security Act); replacing it was the first revocation of a major entitlement for low-income families. While TANF is only one piece of the federal welfare system, it was a major departure from the past and does inform the federalism debate: first, its existence was made possible by the example of welfare reforms undertaken in Wisconsin, Connecticut, and New York City in the early 1990s, using federal AFDC waivers to impose work requirements and time limits, as well as require child school attendance;60 and second, TANF displayed many of the promises (and challenges) of welfare devolution. TANF replaced the open-ended AFDC cash entitlement for families (with minor children) earning below a certain income with a fixed-amount block grant that allowed states to create their replacement system—but one that must require work activities and include a fiveyear lifetime limit on benefits (both with significant exemptions). Beyond that, states were given broad latitude to design their welfare systems as long as they met four federal goals that generally involved assisting needy families, promoting work and marriage, and reducing out-of-wedlock pregnancies. The law also required states to contribute their own funds to the new system—80% of what they had spent in the old AFDC system.61 On the positive side, TANF has shown that block grants can succeed if Washington sets broad goals and provides states with flexibility in program design. Despite hysterical predictions of mass starvation, third-world poverty, and death,62 TANF has exceeded even its most optimistic predictions. Following the passage of welfare reform, the number of families collecting AFDC/TANF quickly fell from 4.5 million to 2 million—and then to 1.2 million by 2018.63 Many of these families moved into full-time jobs that paid much more than welfare and began the journey toward self-sufficiency.64 The poverty rate quickly fell to its lowest level in nearly 30 years; the black poverty (and black child poverty) rates fell so far that even the “Great Recession” of 2007–09 did not raise poverty rates to pre-TANF levels.65 While critics credit the economic boom of the late 1990s for this progress, previous economic expansions did not produce such large poverty and caseload reductions, 13 and subsequent recessions showed a lower poverty ceiling than before 1996 for most populations. Still, the TANF devolution was imperfect. States exploited loopholes in the law to exempt most families from work requirements and ignore the five-year time limit.66 The federal grant has been frozen at $16.5 billion since 1996, despite cumulative inflation of 64%—although sharply reduced caseloads have roughly maintained per-family spending, adjusted for inflation.67 A few outlier states have offered very low cash benefit levels, rejected as many as 98% of TANF applicants, and diverted funds into questionable or illegal uses.68 The percentage of families in deep poverty has not fallen. The strongest criticisms of TANF have come from liberal states that object to the federal work requirements and time limits. These states prefer to put more resources into education and training (or even return to open-ended assistance with no obligations for recipients) and not be constrained by federal goals such as promoting marriage or reducing out-of-wedlock births. The result of these complaints was the Obama administration’s offer to waive (with questionable legality) some of the work requirements for some states.69 To be sure, state and local customization is vital for a well-functioning welfare system. Every state and local community has unique poverty drivers and needs. Some communities may be plagued by high housing costs, extraordinarily expensive child care, or energy costs. Moving welfare recipients into jobs may be more feasible in one local economy than another. Even within a community, each low-income family has its own story and poverty solution. Furthermore, liberal and conservative communities have their preferred poverty approaches based on local values. These considerations do not imply that the country (or low-income Americans) would be better off by returning to AFDC; they argue, instead, for better rationalization of the federal welfare system in the direction of greater devolution. In any case, the federal welfare system is a bureaucratic mess with seemingly no one in charge. It consists of approximately 80 different federal meanstested programs spread across a half-dozen federal departments and dozens of federal agencies. For example, the Department of Agriculture runs several food programs, the Department of Housing and Urban Development (HUD) operates housing and urban aid, the Department of Health and Human Services (HHS) contains a multitude of cash programs, and the Treasury Department coordinates low-income tax credits. Many federally funded welfare programs are overseen by different congressional committees and reauthorized in separate bills that are enacted years (or decades) apart from each other. Lacking any consistent approach, these programs contain wildly divergent eligibilities, benefit formulas, and requirements from recipients—even the programs that interact with each other. Some programs block grant money to states, others rely on matching grants, and others bypass states entirely. Countless state welfare programs have their own approaches, eligibilities, and benefit levels, as well. In sum, federal and state welfare programs spent $1.1 trillion in FY 2016—enough to grant $100,000 per year to each of the 10 million families with incomes at or below 125% of the federal poverty threshold (or to provide $67,000 per family excluding health-care benefits).70 In 2016, just the cash, food, and housing assistance came to 140% of the amount needed to bring every American family out of poverty.71 In fact, much of it does—as the federal poverty rate does not include most federal benefits. Additionally, antipoverty programs assist millions of struggling families whose earners exceed the official poverty line of $21,960 for a family of three. From the standpoint of devolution, the pertinent issue is what states could do with all federal antipoverty funds consolidated into one block grant that roughly matches how much each state is already receiving. Each state could combine the federal block grant with its own funds to build a coordinated system of assistance to vulnerable families. Rather than navigate a maze of dozens of federal programs, families could visit one local welfare office and enroll in one coordinated system that is tailored to their needs. These offices could also assist with education, job training, and job placement. Policy scholar Oren Cass has called such a system a “Flex Fund,” noting that such a consolidation “increases the likelihood of constructive reform by increasing accountability and eliminating unfunded mandates from above or efforts to game the system from below.”72 Not all federal means-tested benefits can be part of this block grant. Earned Income Tax Credit (EITC) would remain part of the federal tax code. However, aggressively expanding EITC can push enough working families out of poverty so that fewer families would need to enroll in the new state fund. Some may suggest a separate fund for health-care benefits (discussed below). This block grant concept is not new; yet it can address criticisms of past proposals. For instance, while the TANF block grant has been frozen at $16.5 billion for nearly 25 years, this new block grant can be designed to expand automatically annually by a formula that accounts for state poverty populations and the cost of Devolution: Four Proposals to Empower States and Reduce Washington’s Political Strife 14 living. It can also include recession triggers for additional increases. As with TANF, states can be required to continue contributing to this welfare system at their previous levels. And if states truly fear being cheated by Washington on the size of the grant, they can be given a frequent choice between the current system or accepting this grant. Perhaps the most challenging issue is that of federal performance standards and goals. Federal work requirements have been successful in TANF, yet more liberal states have supported more of an education and training approach, with additional work exemptions. Liberal states have also preferred to focus more on reducing poverty (by any means) than encouraging work or reducing welfare caseloads. This can all be negotiated while emphasizing that devolution means trusting states to experiment with new approaches that reflect their values. Relatedly, states that accept a federal block grant must accept basic accountability rules to ensure that funds are not misspent and that a minimum safety net is maintained. States that set absurdly low benefit levels or reject nearly 100% of applicants must be subject to federal sanctions. The continued failure to produce a welfare system that meets minimum federal standards should result in the revocation of the state’s block grant and its re-enrollment in the current federal system that sets eligibility and benefit levels for most programs. The vast majority of states are clearly equipped to design and run their welfare system if they choose. Federal accountability standards can address any outlier states that may misspend funds or attempt to eviscerate their safety net. Some states may choose more education, training, and open-ended benefits, while other states more aggressively push work requirements. Each state should reflect its own values and discover which approach works best.