BACKGROUND MATERIAL I. THE PRESENT SYSTEM A. FAILURES The present welfare system has been a failure; all indications are that its future will be worse, not better. In the last decade, the costs of aid to families with dependent children (AFDC) have more than tripled. The caseload has more than doubled. Even more disturbing is the fact that the proportion of persons on AFDC is growing. In the past 15 years the proportion of children receiving assistance has doubled-from 30 children per 1,000 to about 60 per 1,000 at present. B. INEQUITIES Serious inequities exist under AFDC between regions of the country, between male- and female-headed families, and between poor people who work to help themselves on the one hand and the welfare poor on the other hand. Average benefits for a female-headed family of four persons vary from $39 to $263 a month. Only 24 States provide federally matched assistance to male-headed families, and this is only done where there is an "unemployed father" in the house one who works no more than 30 hours a week. In no State is there now federally matched assistance for a male-headed family where the father works full time. The present AFDC system encourages dependency. The preferential treatment of female-headed families has led to increased family breakup. In 1940, 30 percent of AFDC families had absent fathers; today it is over 70 percent. II. THE NEW SYSTEM A. COVERAGE The administration's proposed welfare reform will provide direct Federal payments to all families with children with incomes below stipulated amounts. The principal new group made eligible for cash assistance under the proposal is "working poor" families headed by males employed full time. The administration's proposed system would cover both "dependent families," defined as those headed by a female or an unemployed father, and "working poor" families, defined as families headed by a full-time employed male. B. BENEFIT LEVELS 1. Families with no earnings The basic Federal benefit for a family of four would be $1,600 per year, $500 per person for the first two family members and $300 for 103 (111) each family member thereafter. A seven-person family with no earnings would receive $2,500 per year. 2. Families with earnings Families of four with earnings up to $3,920 per year would be eligible for payments. Families of seven would be eligible up to $5,720. All families would be allowed to "disregard" $60 per month ($720 per year) as work-related expenses-transportation, meals, clothing. Benefits would be reduced by 50 percent as earnings increase above $720 per year. C. AN EXAMPLE A family of four with earnings of $2,000 would be entitled to disregard the first $720 in earnings. Subtracting $720 from $2,000, the remainder is $1,280. Fifty percent of this amount ($640) is subtracted from the family's entitlement for benefits, which is $1,600. The remainder ($960) is added to the family's earnings of $2,000. Its total income, therefore, would be $2,960. (Šee chart II.) A family of seven, with $2,000 in income, using the same arithmetic, would be entitled to benefits of $1,860 for a total income of $3,860. D. STATE SUPPLEMENTAL BENEFITS In order that present benefit levels not be reduced for families aided under the existing AFDC program, the new system would require the continuation of State benefits equal to the difference between the proposed Federal minimum and a State's present benefit level. All States, however, would receive fiscal relief under the proposed welfare program. States would not be required to supplement "working poor" families. E. THE WORK REQUIREMENT A basic element of the administration's welfare reform program is its emphasis on work, both a strong work requirement and the provision of incentives throughout the system for training and employment. (See chart VI.) All applicants for benefits who are not working are required to register with the Employment Service. Employable recipients must accept training or employment or lose their portion of the family's benefit. F. TRAINING AND DAY CARE To insure that employable recipients become self-sufficient, the administration's program provides a substantial increase in training opportunities and child care services. Training opportunities will be provided for an additional 150,000 welfare mothers. Child care services will be provided for an additional 450,000 children in families headed by welfare mothers. G. ADMINISTRATION Another important feature of the administration's welfare reform program is the national administration of the basic Federal benefit for families. It is proposed that the administration of the system be assigned to the Social Security Administration in the Department of Health, Education and Welfare. The administration of the new system by the Social Security Administration would be handled entirely separate from its responsibility for the wage-related contributory OASDI programs. III. COST OF THE PROGRAM The estimated cost in the first full year of operation of the proposed welfare reform program is $4 billion. This is additional to present Federal spending for public assistance, estimated at $4.20 billion in fiscal year 1970, Major cost components of the program are: 1. Benefits to families__ 2. Adult minimum standards. 3. Training and day care to provide additional work opportunities for 3. Other: Administration, effects on other programs, fiscal relief to States, Billion $2.5 4 .6 5 4.0 A. BENEFITS TO FAMILIES The estimate above of $2.5 billion in additional spending for benefits to families is based on an inter-agency analysis of data from the OEO Survey of Economic Opportunity. The economic model for deriving this estimate uses data on 14,000 low income families and current research findings. B. ADULT MINIMUM STANDARD The administration's welfare reform program also establishes a Federal minimum payment level of $65 per month for the three adult public assistance categories (aid for the blind, the disabled and the aged) and provides for the administrative combination of these programs. Under this proposal, the Federal Government pays 100 percent of the first $50; 50 percent of the next $15; and 25 percent thereafter. Fiscal relief for State and local governments as a result of this Federal minimum for the adult categories is $400 million. C. TRAINING AND CHILD CARE The total cost for training an additional 150,000 welfare mothers and providing child care services for an additional 450,000 children is $623 million. SUMMARY OF ADDED TRAINING AND CHILD CARE COSTS AND ENROLLMENTS IV. FISCAL RELIEF TO STATE AND LOCAL GOVERNMENTS A. UNDER THE NEW WELFARE PLAN Under the administration's proposed welfare reform program, all States receive fiscal relief. Each State is required to spend at least 50 percent of the amount spent in the base year for the present public assistance programs. No State, however, is required to spend more than 90 percent of expenditures in the base year for the four categories. B. REVENUE SHARING State and local governments are also aided under the administration's proposed revenue sharing program. The first full year effect of revenue sharing is $1 billion. The amount of revenue sharing increases annually in five steps thereafter. C. COMBINED IMPACT OF WELFARE REFORM PROPOSAL AND REVENUE SHARING Combining the welfare reform and revenue sharing proposals, $5 billion in new first-year funds is distributed as follows: Cash assistance benefits for the poor-. Fiscal relief for State and local governments- Other Total Billion $2.2 1.7 .6 The table attached provides State-by-State data on fiscal relief under both the administration's proposed welfare and revenue sharing reforms in their first full year of effect. TABLE 1.-IMPACT ON STATE AND LOCAL GOVERNMENTS OF WELFARE REFORM AND REVENUE SHARING (FIRST FULL-YEAR EFFECT) The CHAIRMAN. As indicated in the announcement of October 6, we will today begin to receive testimony from officials of the Administration. We will hear testimony from the Department of Health, Education, and Welfare today and testimony from the Department of Labor beginning at 10 a.m., tomorrow morning, if we conclude with these witnesses today. Initially, we had intended to resume on Wednesday, October 22, to begin to receive testimony from the general public. However, since it is the understanding of the Chair that Secretary Finch can be here for only the morning session today, we have agreed to have him return to the committee in public hearings for further questioning if we do not conclude with the questioning this morning. That would be on Wednesday morning, October 22. After completion of that testimony, the committee will then begin to receive testimony from the general public on that day or the day following. In view of the scope of the hearings, the Chair again urges all prospective witnesses to consolidate their statements in order to conserve the time of the witnesses and the committee. All requests to be heard must be submitted not later than the close of business Friday, October 17, and let me add there will be no exceptions made to that closing date. Mr. BURKE. Mr. Chairman, before you proceed, I would just like to raise a question as to why the Secretary of Health, Education and Welfare can be here only a half a day. We have the most important questions on social security legislation to consider. Can he tell us what is more important to him, where he is going to be and why he can't be with the committee during the next few days? STATEMENT OF HON. ROBERT H. FINCH, SECRETARY OF HEALTH, Secretary FINCH. I will be happy to respond, Mr. Chairman. Mr. BURKE. I know that, but I have heard some disturbing reports that the Secretary may be making some campaign speeches out in California, and if that is true I would want to object to him being here only a half a day. The CHAIRMAN. Well, we can't control that and, at any rate, you know, making campaign speeches, if that happens to be the case, is all a part of this business of ours of trying to stay in office and I am |