Welfare reform: Minnesota style: reforming welfare is a work in progress. Even Minnesota's successful experiment that encourages work, but retains some benefits, is still being tweaked.

When Congress abolished the nation's old welfare system in 1996, imposed tough new work rules and limited cash welfare to five years, the late Senator Daniel Patrick Moynihan called it "the most dramatic experiment in domestic social policy since the New Deal."

To legislators and governors, however, a different feature of the law stood out: It granted states unprecedented flexibility to design their own welfare-to-work programs, according to their own ideas. To them, welfare reform is not one big national experiment, but 50 very different and diverse ones.

Some states, notably Wisconsin and Arizona, adopted aggressive "work first" systems that encouraged rapid employment and discouraged families from entering the welfare system in the first place. Other states, including Connecticut and Indiana, experimented with time limits as short as two years on the theory that tough deadlines would encourage welfare parents to seek work quickly.

Some states focused on increasing families' incomes, looking to lift them out of poverty and improve child well-being. Minnesota, Oregon and Illinois focused on this "make work pay" strategy. They emphasized building job skills and education and supplementing earned income, rather than moving families off welfare.

THE MINNESOTA MODEL

The Minnesota approach, which rewarded welfare families with wage supplements, child-care subsidies and other work supports as they moved into the job market, landed The North Star State a prominent place in the national research literature and won plaudits from President Bill Clinton. It also triggered a new conversation among economists about solving an old dilemma in welfare policy: How to wean families from public assistance and raise them out of poverty.

"Early findings [from these projects] provide encouraging evidence that making work pay, in conjunction with other services and conditions, can both increase work and reduce poverty among welfare recipients without reducing employment rates among the working poor," Gordon Berlin of the Manpower Demonstration Research Corporation concluded in a 2000 monograph, "Encouraging Work, Reducing Poverty."

Since 1996 and the devolution of welfare authority, many states have adopted some version of "make work pay." But few researched the tactic so rigorously. And few built such a durable political consensus around a new welfare strategy that would decrease dependency while also reducing poverty.

Ironically, the Minnesota experiment began in acrimony, not harmony. In 1986, Minnesota Republicans had gained control of the House after several years in the minority. In an effort to scale back on Minnesota's reputation for generous social benefits, they proposed a 30 percent cut in the state's monthly welfare grant. A bitter fight broke out with Senate Democrats. As a result, Democratic Governor Rudy Perpich suggested simply pulling welfare off the Legislature's agenda and turning it over to a bipartisan citizens' commission. Perpich's plan was widely regarded as a political convenience, a way to end the legislative session.

To the surprise of many observers, however, the commission's 10 members dug in for a long summer's work of research and reflection. They took testimony from the state demographer on whether Minnesota had become a "welfare magnet" for poor families from other states. They heard from county welfare workers about the red tape and perverse incentives of the old welfare system, Aid to Families with Dependent Children (AFDC). And they heard from welfare mothers themselves about their struggles to make ends meet while trying to leave public assistance. At the end of that year, the commission gave Perpich a remarkable report: Liberals agreed that Minnesota needed a welfare system that required work; conservatives agreed that such a system should reward work and lift families out of poverty.

WOULD THE SYSTEM WORK?

By the early 1990s, when the state's Department of Human Services was ready to field test its new welfare-to-work system, it hired a respected outside evaluator, the Manpower Demonstration Research Corporation (now MDRC) to see if the strategy actually worked. When MDRC began returning its first evaluations of the pilot program in the mid-1990s, observers were stunned.

The Minnesota Family Investment Program, or MFIP, produced employment effects as powerful as any state welfare-to-work program that the group had then evaluated; that is, adults in Minnesota's new program were much more likely to find work than their counterparts in AFDC. But the family investment program also had powerful income effects: Its clients were much more likely to climb out of poverty because they could keep a portion of their welfare check as they worked their way out of public assistance. (Under AFDC, welfare recipients generally lost $1 in benefits for every $1 in earnings, leaving them no better off financially.)

And in a result that surprised the national research community, Minnesota Family Investment Program also produced measurable and unprecedented improvements in family well-being: marital stability went up, domestic violence went down, the children performed better in school.

The evaluation results were so persuasive that in 1997 Perpich's successor, Republican budget hawk Arne Carlson, embraced the program and proposed it as Minnesota's statewide TANF system under the new federal welfare law.

Despite MFIP's bipartisan provenance and successful field tests, Minnesota legislators were not prepared to adopt it statewide without some changes. Representative Fran Bradley, a Republican authority on health care and social programs, felt the program needed time limits and a leaner benefit mix.

"I insisted that we inventory all the government benefits available to a poor family--food stamps, housing subsidies, WIC--because when you put them all together, families still had a strong incentive to stay on assistance," Bradley says today.

Representative Kevin Goodno, a young Republican legislator who was becoming his caucus' expert on poverty policy, worried that the work requirements were too lax. He thought that recipients might linger on the caseload for two or three years--using up their federal time limit--before they received a rigorous vocational screening and the employment services needed to move them into the job market.

To address these concerns, Governor Carlson invited 12 legislators--six Democrats and six Republicans--to form a working group that would spend the earliest weeks of the 1997 legislative session retooling the family investment program for statewide use and then presenting it to the full Legislature.

The resulting bill passed in the spring of 1997 with overwhelming bipartisan support, but MFIP had changed. Rather than lifting a family to 140 percent of the federal poverty line before terminating benefits, the new program put the "exit threshold" at 120 percent of poverty. It also had tighter work requirements and less flexibility for education and training.

FROM PROM DRESS TO HOUSE COAT

Some Democrats in the Minnesota Legislature were hitter about the changes. "We took a prom dress and turned it into a house-coat," says Senator Linda Berglin, a Minneapolis Democrat and a member of the 12-person legislative task force.

The statewide version of the Minnesota Family Investment Program in place since 1997 has never received the sort of rigorous, random-assignment evaluation given the pilot program. But it appears to be achieving many of the original goals.

Sheila Zedlewski of the Urban Institute in Washington, D.C., estimates that Minnesota ranks No. 6 nationally--after Alaska, California, Connecticut, Hawaii and Wisconsin--in lifting families out of poverty with a combination of wages and wage supplements. Professor Maria Hanratty at the University of Minnesota found that child poverty fell much more sharply in Minnesota than in neighboring states or the nation as a whole between 1994 and 2002. Today, about 60 percent of welfare "leavers" in Minnesota live above the federal poverty line, a much higher share than in comparable states.

Minnesota has not cut welfare caseloads as sharply as most states. But it has roughly tripled the share of welfare recipients holding jobs. It moves nearly two-thirds of all new applicants into the job market and off assistance within two years.

The political consensus around MFIP and its success in the field were such that when a new governor took office in 1998--the skeptical and hawkish independent Jesse Ventura--he quickly embraced the welfare program and actually increased its funding.

The power of the make-work-pay strategy has not been lost on other states or on poverty researchers. Almost every state has adopted the "earnings disregard" technique, the tool that allows a welfare recipient to retain a partial welfare benefit even after finding work.

In fact, researchers for the U.S. Department of Health and Human Services concluded that the only state welfare-to-work programs that consistently produced improvements in child and family well-being were those that raised family incomes during the transition to work, generally through earnings disregards.

Like most other state welfare programs, the Minnesota Family Investment Program remains something of a work in progress.

When a new Republican governor, Tim Pawlenty, took office in Minnesota in 2003, he quickly ordered several structural changes in the welfare program. One, called a diversionary work program, requires counties to offer immediate employment services to every applicant. It also requires most new applicants to search for work for four months before they can formally enter the system. A second change raises penalties, or "sanctions," on noncompliant families from 30 percent of the monthly cash grant to 100 percent.

Kevin Goodno, who left the Legislature and became Pawlenty's commissioner of human services, says he and the governor worried that MFIP did a good job serving the two-thirds of recipients who were capable of finding work quickly, but was too slow in reaching and motivating those who might struggle for months in the job market. Anti-poverty advocates such as Senator Berglin say the new strategy simply makes it harder for poor families to apply for assistance with-out funding the services that would really help them find work.

The new structural changes to the Minnesota Family Investment Program were scheduled to take effect in July 2004. It's too soon to say whether they will give welfare clients the speedy attention and services that Goodno describes or merely erect another barrier for families seeking public assistance.

But longtime scholars of poverty policy, such as Gordon Berlin at MDRC, say the power of programs like Minnesota's is that they demonstrate that welfare policy can accomplish two goals at once. By combining strong work mandates with powerful work rewards, states can promote work and lift families out of poverty.

WELFARE REFORM IN MINNESOTA

Reforming Welfare by Rewarding Work, One State's Successful Experiment by David Hage, University of Minnesota Press, 2004, Minneapolis, Minn., 184 pages. $18.95, paper.

Anyone interested in understanding welfare reform will appreciate David Hage's Reforming Welfare by Rewarding Work. An editorial writer for the Minneapolis Star Tribune, Hage uses his considerable reporting skills to intertwine the stories of three welfare families with the development of Minnesota's Family Investment Program. He traces the evolution of welfare reform in the state from the development of an initial pilot in the mid-1980s to the present day statewide program. He tells the story from the vantage point of state policymakers, as well as of the families who learn to make their way under the new system.

This book is unusual in that it succeeds in combining a careful synthesis of the academic research on the effects of welfare reform with a compelling account of the personal and political dimensions of the process. For this reason, it should be of interest to a broad range of readers from state legislators, public administrators and policy advocates to academic researchers.

The Minnesota welfare reform model places a relatively high priority on reducing poverty, as well as promoting work. The initial demonstration program attracted national attention because it was the only U.S. program to show substantial reductions in poverty and increases in marital stability and child welfare in an experimental evaluation. While Minnesota's statewide program has been scaled back somewhat, it continues to offer a relatively generous package of financial and in-kind assistance to working welfare recipients. And it has succeeded in generating relatively high wages and reducing poverty among families who leave welfare.

Hage's book also demonstrates a number of lessons for policymakers working in a contested environment. In Minnesota, influential governors were able to move the issue out of the political spotlight by forming two bipartisan commissions to design a new welfare system. Hage also demonstrates how research was used to develop policy. His book illustrates the importance of the growing expertise of state policymakers as they moved from the initial demonstration to the later statewide program.

The stories of the three families who participated in the program convey the complexity of successful welfare reform. The program's "work first" message was effective for a mother who was ready to work. But that same policy may have slowed down another more academically ambitious woman who wanted to continue her education. His third example illustrates the acute difficulties of designing policy for families with long-term disabilities. Finally, while the program clearly helped to stabilize all three families in a period of crisis, the financial circumstances of all three remain somewhat precarious. As Hage notes, for both the families and state officials, welfare reform remains an ongoing process.

--Maria Hanratty, Humphrey Institute of Public Affairs 

STATES MOVE AHEAD

Many states have put off major reviews of their Temporary Assistance to Needy Families (TANF) programs as they struggle with fiscal crises and wait for federal reauthorization. But a few states, like Minnesota, decided not to wait and have made changes to strengthen their welfare programs:

Arkansas--Legislators wanted to increase the welfare agency's focus on providing needed services to recipients and helping them move off welfare, into jobs and out of poverty. They aim to:

* Increase the numbers of parents getting the services necessary to move them off welfare.

* Increase the number of recipients earning enough money so they no longer need cash assistance. Raise the earnings of families leaving welfare.

* Expand job retention among those families.

* Multiply the number of those families who earn more than the poverty level.

The new law also allows parents to count coursework and study time as full-time work, as long as they exceed the minimum number of hours required.

Louisiana--Lawmakers were concerned about educational abilities of welfare recipients and how the program offered little basic assistance. The more education a recipient has, the greater chance of employment and higher wages. Now, agency efforts are focused more on improving basic workplace and literacy skills. The law also requires recipients who are pregnant or who have a child under a year to participate in parenting classes.

The Legislature also shifted TANF funds in the 2005 budget away from after-school programs and services to fathers to support a broad expansion of pre-kindergarten programs.

New Mexico--Lawmakers created "individual development accounts" to help families save money for education, buy or repair a home, start a business, or buy a car. These savings don't count against eligibility for cash assistance and services. And they can be matched by private foundation funds.

Lawmakers also established an "education works" program for cash recipients who are full-time students in post-secondary or vocational education. Students must have individual plans that set education goals and identify the services needed to help them reach those goals. It limits enrollment to 24 months in most cases.

Texas--Legislators looked to strengthen the emphasis on work, partly in anticipation of the proposed federal increases in work participation rates. They increased work requirements for parents receiving cash assistance, including total loss of family benefits for not complying.

Marriage is encouraged through an exemption of a new spouse's income for six months after a recipient marries. The law also set up a "healthy marriage" program with premarital counseling and relationship skills training, subject to available federal funding.

--Jack Tweedie, NCSL 

Dave Hage is an editorial writer for the Minneapolis Star Tribune. His account of Minnesota's innovative antipoverty project, "Reforming Welfare by Rewarding Work: One State's Successful Experiment," was published in April by the University of Minnesota Press.