Spending on Social Welfare Programs in Rich and Poor States

Appendix B:
Field Visit Documentation

Contents

Field Visit Documentation

The study "Spending on Social Welfare Programs in Rich and Poor States" examined the policies, institutions, and processes of six states with low fiscal capacity and high social needs to better understand how these states make decisions in funding social welfare programs, and to identify factors that influence their social welfare spending. The six states selected for analysis were Arizona, Louisiana, Mississippi, New Mexico, South Carolina, and West Virginia. This Appendix includes a brief discussion of the fiscal capacity and need measures for the six states examined and the methodology used for this study component. Also included are narratives that briefly describe significant features of each state's budget process, its reaction to federal welfare reform, and trends in non-Temporary Assistance for Need Families (TANF) federal programs that influence state social welfare spending decisions.

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Fiscal Capacity and Need Measures

Per capita personal income data suggest that the six states selected for analysis have less potential to raise revenue than most states. As noted in Exhibit Appendix B-1, Mississippi and West Virginia rank the lowest in ability to raise revenue in 1995 and 2001, 50 and 49 respectively, using per capita personal income as the measure of fiscal capacity. New Mexico, Louisiana, and South Carolina rank in the lowest quartile of states, and Arizona falls in one of the bottom two quartiles depending on the year analyzed.

Exhibit Appendix B-1:
State Fiscal Capacity - Per Capita Personal Income
  1995 2001
PCPI State Ranking PCPI State Ranking
Mississippi 16,984 50 21,750 50
West Virginia 17,882 49 22,881 49
New Mexico 18,435 47 23,155 47
Louisiana 19,314 40 24,535 44
South Carolina 19,221 41 24,886 41
Arizona 20,050 36 25,872 38
United States 23,255   30,472  
Source: Per capita personal income levels developed by Rockefeller Institute staff using U.S. Department of Commerce, Bureau of Economic Analysis and Census Bureau data. The levels are in current dollars and were developed by dividing total personal income by total mid-year population estimates.

The six states also rank low in fiscal capacity using other measures such as representative tax system and total taxable resources. Exceptions are Louisiana and New Mexico, which rank somewhat higher using total taxable resources. This can probably be explained, for the most part, by income from oil and natural gas production that may not be captured by other measures.

Exhibit Appendix B-2:
State Social Need - Poverty Rate
  1995 2001
Rate State Ranking Rate State Ranking
New Mexico 25.5% 1 17.4% 2
Louisiana 21.9% 2 16.7% 3
Mississippi 21.3% 3 16.6% 4
Arizona 18.2% 4 13.3% 12
West Virginia 17.6% 6 15.3% 5
South Carolina 15.6% 14 12.7% 14
United States 13.2%   11.1%  
Source: Poverty rates developed by Rockefeller Institute staff using U.S. Department of Commerce, Census Bureau data. The rates are three-year averages calculated using the number of poor people and total population: for example, the poverty rate for 2000 is equal to the average of the number of poor people in 1999, 2000, and 2001 divided by the total population in 2000.

Poverty and unemployment data suggest that the six study states have high social needs when compared to the rest of nation. As noted in Exhibit Appendix B-2, all of the selected states have poverty rates above the national rate. New Mexico, Louisiana, Mississippi, Arizona, and West Virginia had poverty rates in 1995 that were among the highest in the nation. Although poverty rates in general improved from 1995 to 2001, Arizona's improvement was somewhat greater than other states, moving from the fourth highest rate in the nation in 1995 to the twelfth highest in 2001. Four of the states selected for further analysis, Louisiana, Mississippi, New Mexico, and West Virginia, had unemployment rates higher than the national rate from 1995 to 2003 (see Exhibit Appendix B-3). Although unemployment declined in general from 1995 to about 2000, West Virginia's decline was greater than other study states, falling from 7.9 percent in 1995 to 4.8 percent in 2001. Arizona's unemployment rate remained close to the nation's average rate from 1995 to 2001. South Carolina's rate was also about average until about 2000 when it increased more rapidly.

Exhibit Appendix B-3:
State Social Need - Unemployment Rates

Exhibit Appendix B-3: State Social Need - Unemployment Rates

Source: Calendar year unemployment rates calculated by Rockefeller Institute staff using U.S. Department of Commerce, Bureau of Labor Statistics seasonally adjusted data.

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Methodology

As noted in Section II.C., Arizona, Louisiana, Mississippi, New Mexico, South Carolina, and West Virginia were selected for further analysis using a three-step process that examined measures of state fiscal capacity and need for social welfare services. Staff from the Rockefeller Institute of Government and The Lewin Group spent approximately three days in each state interviewing executive budget and program officials; legislators and staff; and high-level agency staff responsible for the state's TANF, Medicaid, child welfare, welfare employment, and child care programs. The site visits took place from August to November 2003. Project researchers visited West Virginia and Arizona in August, South Carolina and New Mexico in September, and Louisiana and Mississippi in November.

Interview questions covered state budget formulation and implementation; social welfare policies and spending; state response to changes in federal programs; program constituencies; and state support of social welfare programs during the recent economic boom and downturn. Project researchers also reviewed public documents including state social welfare legislation and regulations; federally required state plans, performance reports and expenditure data for large social programs; federal and state agency reports; state budget bills and summaries; newspaper articles; and, where available, previous work completed by Rockefeller Institute and other researchers.

The six states selected for further analysis have fiscal years that begin July 1. All have annual budget cycles except for Arizona, which has a biennial cycle. Each state had enacted its state fiscal year (SFY) 2003-04 budget prior to the project's site visit and state officials were in the process of developing their SFY 2004-05 budget proposals when visits were completed. The governors of three study states, Arizona, New Mexico, and South Carolina, were in their first year of office when interviews were completed. Two study states, Louisiana and Mississippi, have sworn in new governors since the site visits were completed. The narratives for Louisiana and Mississippi that follow include information on the goals and priorities of the new governors where possible.

For each state, we use National Association of State Budget Officers (NASBO) 2002 data to provide information on total state expenditures, TANF expenditures, and Medicaid expenditures. There are interesting observations when comparing spending patterns for the six states selected for further analysis to the nation. For example, Arizona, Louisiana, Mississippi, and South Carolina spent a lower proportion of their total expenditures on TANF compared to the nation, whereas New Mexico and West Virginia spent a higher proportion of their total expenditures on TANF. Arizona, New Mexico, and West Virginia spent a lower proportion of their total expenditures on Medicaid compared to the nation, whereas Louisiana, Mississippi, and South Carolina spent a higher proportion of their total expenditures on Medicaid.

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State Narratives

Arizona

Population (July 2003): 5.6 Million

Total State Expenditures - SFY 2002: $18,983 Million (US Total: $1,073,816 Million)

TANF Expenditures - SFY 2002 (% of total): 0.7% (US: 1.3%)

Medicaid Expenditures - SFY 2002 (% of total): 19% (US: 20.8%)

(Source: U.S. Department of Commerce, Census Bureau and NASBO 2002 State Expenditure Report)

Arizona's per capita personal income is lower than the national average, although higher than any of the other five states in the case study. As noted earlier, in 1995 and 2001, Arizona, while not in the bottom quartile, was in the second to bottom quartile when ranking states using this measure. Data from the state's Joint Legislative Budget Committee indicate that 95 percent of Arizona's state revenue comes from sales, personal income, and corporate taxes. The state relies heavily on sales tax with 52 percent of its revenue in 2003 coming from this source. The committee is projecting revenue from the three taxes to continue to recover in 2004 and 2005 after either declines or declining growth from 1999 to 2002. Information from the Center on Budget and Policy Priorities suggests that Arizona faces a significant budget deficit of approximately $1.1 billion for SFY 2005.

Arizona's overall poverty rate is higher than the national average. Arizona's rapid growth in population from 1995 to 2003, over one million new citizens or a 25 percent increase, has put pressure on the state budget by increasing need from all government services. The state has also experienced an increase in cash assistance and Medicaid caseloads. Arizona's cash assistance caseload increased 53 percent from January 2001 to June 2003, compared to a 5 percent decline for all states. Medicaid caseload has also increased due to an expansion in eligibility from a voter-driven initiative discussed below.

State Budget Development and Implementation

Arizona slowly transitioned from an annual to biennial budget in the 1990s. In 2002, the state returned to an annual budget cycle for larger state agencies including the Department of Economic Security (TANF, Food Stamps, child care, child welfare, adoption, foster care, and child support enforcement) and the Arizona Health Care Cost Containment System (Medicaid and State Child Health Insurance Plus (SCHIP)).

Arizona's budget process begins with the governor providing funding targets to state agencies for the upcoming fiscal year. State agencies submit their budget requests to the Governor's Office of Strategic Planning and Budget (OSPB) in September. OSPB shares these requests with staff of the Joint Legislative Budget Committee (JLBC). The governor presents his or her budget proposal in January. The legislature presents a separate budget that can be very different from the executive proposal. The state Constitution and statute impose a balanced budget requirement on both the executive and legislative branches of government, although there is authority to incur up to $350,000 in debt. Arizona does not have a consensus revenue forecast requirement.

The Arizona legislature has been characterized as the most powerful branch of government in the state in budget development. The state's Constitution gives the legislature authority to develop, amend, and pass budget bills for the governor's signature. A state official interviewed indicated that it can be difficult for the executive to get the legislature to incorporate the governor's priorities in its budget. The executive must lobby the legislature by way of the Governor's state of the state address, appropriations hearings, and other avenues.

Governors can direct state spending through the threat and use of their veto authority that includes the ability to veto specific items or the entire budget bill. Governor Janet Napolitano, who took office in 2003, is currently being sued by members of the legislature over 13 line-item vetoes to the legislature's SFY 2004 budget. The vetoes delayed $75 million in payments on a class action tax lawsuit and restored more than $31 million in legislative cuts to state agencies, social services, and education. The legislature argues that Governor Napolitano's vetoes violated the separation of powers between the executive and legislative branches of government and intruded on the legislature's appropriation authority. The outcome could impact the governor's power in future budget cycles.

Citizen-driven initiatives limit the ability of the legislature to raise revenue and direct spending. Successful ballot measures that impose significant restraints include:

Arizona's Response to Federal Welfare Reform(1)

Arizona initiated its welfare reform efforts in late 1995 through waivers from the federal government. The state's EMPOWER program, (Employing and Moving People Off Welfare and Encouraging Responsibility), included requirements under consideration for federal welfare reform including time-limited cash assistance, automatic sanctions for not meeting JOBS work requirements, a family benefit cap, transitional medical and child care assistance, restricted eligibility for unwed minor parents, and individual development accounts.

The state legislature began work on Arizona's second round of reform efforts in 1996 by holding a series of meetings and hearings to gather information on the EMPOWER program. The legislature heard from state agency officials, local officials, welfare advocates, welfare recipients, and others. The two houses of the state legislature ultimately presented welfare reform packages that differed significantly. The state senate, the more conservative body, was skeptical about the incentives in the existing state bureaucracy to reduce caseload and supported the complete privatization of the new welfare program. The state's house (and executive) favored restructuring Arizona's welfare agency to meet the goals of federal welfare reform. A compromise was reached to privatize eligibility and job services decisions in a limited number of sites, for a limited time, and with an evaluation requirement.

Empower Redesign, the state's TANF program, went into effect in August 1997. The new program built upon earlier efforts to establish a more employment focused "work first" client flow, require Personal Responsibility Agreements, institute progressive reductions in monthly cash assistance benefits including a full-family sanction for not complying with requirements of the Personal Responsibility Agreement, and elimination of exemptions from work requirements.

Due to the block grant structure of TANF and the decline in Arizona's welfare caseload in the late 1990s, the state accumulated a surplus of federal TANF funds. In SFYs 1999 and 2000, Arizona used TANF to implement new programs including Wheels-to-Work, Character Education Training, Young Fathers, Employment Transition Program, Domestic Violence Training, Post-Employment Education Program, and Technical Assistance to Business. These programs were eliminated to meet demands for cash assistance payments when Arizona's TANF caseload began to increase shortly after the recent economic downturn. Several programs providing child protective services, substance abuse services, and grant diversion payments, implemented with TANF funds, survived the initial round of cutbacks.

Other Federal Social Welfare Programs

The impact of Proposition 204 on Arizona's Medicaid program was the most significant issue for non-TANF social welfare programs when we interviewed state officials. The citizen initiative expanded Medicaid eligibility from 36 percent of the 1992 federal poverty level to 100 percent of the current federal poverty level, and allocated tobacco settlement money to support the newly eligible population, although these funds have not covered all non-federal costs and state general fund dollars have been used. Shortly after passage of the ballot measure, the legislature shifted responsibility for determining eligibility for many of Arizona's healthcare programs from the counties to the state Department of Economic Security.

OSPB and JLBC projections suggest that Proposition 204 will increase enrollment in the state's Medicaid program by approximately 188,300 to 211,400 individuals by SFY 2004, and will cost over $1.1 billion in federal and state funding. The state general fund will support approximately $187 to $195 million of the increased costs. Critics of Proposition 204 suggest that the increased costs associated with the ballot measure, make services that are not voter protected more vulnerable to budget cuts, especially in an economic downturn.

Louisiana

Population (July 2003): 4.5 Million

Total State Expenditures - SFY 2002: $17,608 Million (US Total: $1,073,816 Million)

TANF Expenditures - SFY 2002 (% of total): 0.8 % (US: 1.3%)

Medicaid Expenditures - SFY 2002 (% of total): 26.8% (US: 20.8%)

(Source: U.S. Department of Commerce, Census Bureau and NASBO 2002 State Expenditure Report)

Louisiana has low fiscal capacity as measured by per capita personal income and representative tax system (43rd on both). It ranks 26th if fiscal capacity is measured by total taxable resources, which are largely based on goods and services produced in the state, and reflect the value of oil production. Louisiana holds almost 10 percent of U.S. oil reserves, making it the country's third largest producer of petroleum. It also has large reserves of natural gas, producing over one-quarter of all U.S. supplies.

Although Louisiana's poverty rate declined in the 1990s, its level has remained high. 2001's 16.7 percent poverty rate is among the highest in the nation, exceeded only by Arkansas and New Mexico. In 2000, 51.5 percent of Louisiana's children lived in households at or below 200 percent of the federal poverty rate and 13.4 percent of those children had no health insurance, placing Louisiana second highest nationwide after New Mexico. Unemployment is above average, as well, increasing 5.1 percent in 1999 to 6.6 percent in 2003.

State Budget Development and Implementation

In 1987, Louisiana moved from line item budgeting to program budgeting, and since 1997, it has implemented a performance-based budgeting system. The governor's office sets priorities and budget strategies. The legislature is not an independent body by practice, and is influenced by the governor, who carries line-item veto power. Political parties do not represent the major political divisions in Louisiana, and the governor's party has less impact on how the legislature reacts than in many other states. In general, Louisiana state government is more divided along policy lines.

The revenue forecast is adopted by the Revenue Estimation Conference, comprised of the governor, the president of the Senate, the Speaker of the House of Representatives (or their respective designees), and a faculty member from a public or private university in the state. The state constitution forbids the legislature from adopting a budget that exceeds the Conference's adopted revenue forecast. The budget originates in the Division of Administration (DOA), the central budget agency for the governor, which prepares the general budget guidelines for executive agencies. From August to December, the executive agencies prepare and submit budget requests to the DOA. The DOA then reviews the requests and prepares an executive budget for the legislature. Prior to the regular legislative session, the general appropriations bill is introduced, putting the governor's executive budget recommendations into a legislative proposal. This bill originates in the House, and, if passed, it is sent to the Senate. Once the bill is introduced in the Senate, it is referred to the Senate's Committee on Finance. After the Committee hearings, the Senate votes on the bill, and if passed, it is returned to the House for concurrence. The House then sends the bill to the governor for review and signature.

According to the Center on Budget and Policy Priorities, Louisiana faces a projected budget shortfall of $500 million in SFY 2005. Although Louisiana did not make any cuts after the budget was passed in SFY 2002, Louisiana reduced the SFY 2003 budget by $100 million mid-year. Louisiana has also been cutting state agency positions. Between SFYs 2001 and 2002, its full-time equivalent positions were reduced by 17.5 percent, including state administered welfare system positions.

Several areas of the state budget are considered non-discretionary and not subject to budget cuts, including natural resources programs, debt services, and the Minimum Foundation Program. Social services programs, however, are discretionary and subject to cuts. Higher education and economic development recently have been given higher priority in the budget process through efforts by the governor.

Louisiana's Response to Federal Welfare Reform

Louisiana's TANF and childcare programs are administered by the Office of Family Support within the Department of Social Services (DSS) and the state's child welfare, adoption, and foster care programs are administered by the Office of Community Services, also within the DSS. In 2001, the TANF Executive Office of Oversight and Evaluation was established within the Division of Administration to oversee the state's TANF initiatives.

In January 1997, Louisiana implemented two principal TANF programs: Family Independence Temporary Assistance Program (FITAP) and Family Independence Work Program (FIND Work) both administered by the DSS. FITAP provides time-limited cash grants to needy families. FIND Work (the work component of the state TANF program) provides job preparation, work, and support services to place recipients in jobs or in educational, training, and other work-related activities. In March 2000 Louisiana implemented another TANF program - Kinship Care Subsidy Program - which provides assistance to children residing with relatives other than their parents.

Louisiana's welfare caseloads fell by 66 percent from 1993 to 1999. In the same period, the poverty rate decreased 27 percent (to 19 percent). Louisiana limits cash assistance to twenty-four months in a sixty-month period. According to DSS reports, two percent of Louisiana families receive cash assistance. Seventy-seven percent of welfare recipients are children, nearly all of whom live in households headed by females, and 86 percent of welfare recipients are African-American. Louisiana's maximum TANF benefit level is low; from 1985 to 2000, the maximum benefit for a three-person family was $190. In 2001, the state increased its benefit level for a family of three to $220.

During the initial years of FITAP and FIND Work, Louisiana accumulated a large surplus of unspent federal TANF block grant funds, partially due to declining welfare rolls. In addition, the state was slow to respond to the increased flexibility afforded by welfare reform. In 2001, Louisiana began using TANF funds for a variety of programs, referred to as TANF Initiatives, to focus on the broader low-income population. The TANF Initiatives included 22 different service initiatives for low-income families in 11 agencies.(2) For example, the state's pre-kindergarten program was created to provide high quality early childhood services for low-income 4-year-olds, and is funded with federal TANF funds. To help oversee this broad range of diverse programs, the TANF Executive Office of Oversight and Evaluation was established in 2001 within the Division of Administration to oversee and evaluate TANF initiatives. The TANF Office is involved in (1) developing, approving, and monitoring performance measurement and accountability standards; (2) TANF budget development and approval; (3) capacity building and technical assistance; and (4) evaluation of FITAP and FIND Work services. The TANF Office also funded a number of research projects including a needs assessment of low-income families, a mapping of poverty indicators, a fragile families study, a teen pregnancy prevention study, and a welfare leavers' study. Allocations for TANF initiatives grew from $89 million in FFY 2002 to $154 million in FFY 2003, but declined to $117 million in FFY 2004. However, FFY 2004 is the last "big year" for TANF initiatives, since the unexpended funds from prior years will be exhausted in FFY 2005. According to state officials' projections, only $37 million will be available for funding TANF initiatives in FFY 2005 due to the reduction in TANF funds transferred to CCDF. Most of Louisiana's TANF expenditures during this period have been for non-assistance service initiatives to low-income populations.

Other Federal Social Welfare Programs

Louisiana's Medicaid and LaCHIP (Louisiana's SCHIP program) programs are administered by the Department of Health and Hospitals (DHH). The number of Medicaid enrollees including LaCHIP, increased 17 percent from 1997 to 2002. This enrollment increase was primarily for children, due to the successful outreach efforts to enroll them in LaCHIP. In SFY 2003, Louisiana's Medicaid program was further expanded for children, aged, and the disabled. Changes were also made for pregnant women by expanding the program in January 2003 to cover those under 200 percent of federal poverty level (after a 15 percent income disregard).

Louisiana also has a high disproportionate share hospital (DSH) cap. The availability of these large DSH funds allows the state, primarily through the state charity hospital system administered by the Louisiana State University Health Care Services Division, to provide medical care to approximately 800,000 uninsured citizens in Louisiana. DHH continues to explore ways to provide more primary care through DSH funding.

Health care comprises almost a third of the Louisiana's total budget. The state is projected to receive $3.6 billion in federal Medicaid funds for FY 2004. In SFY 2003, federal fiscal relief reduced the severity of originally planned long-term care and pharmacy cuts that had been proposed to reduce state Medicaid funding.

The SFY 2004 budget adopted by the legislature included a significant policy change affecting the operation of the state's charity hospitals. Louisiana State University (LSU) was granted more power to manage the public (charity) hospitals that it operates for the state. This allowed them to cut hospital spending by up to 35 percent of a previous year's actual expenses without legislative approval, as opposed to the up-to-10 percent previously allowed by law. Hospitals will be allowed to charge non-emergency patients whose incomes are at least twice the poverty level. Governor Blanco and the DHH secretary discussed several short-term improvements that involved (1) enrolling as many eligible children as possible into Children's Health Insurance Program and, (2) increasing the number of federally qualified health centers.

The programs administered by the DHH have a powerful lobby, unlike the ones administered by the DSS. The Nursing Home Association is one of the most powerful lobby groups in Louisiana. Other influential advocacy groups include the Area Health Education Consortium, groups representing Mental Retardation Developmental Disability (MR/DD), and drug industry associations.

Louisiana's Office of Family Support within the Department of Social Services is the lead agency for the Child Care and Development Fund (CCDF). According to federal administrative data, Louisiana's total CCDF expenditures decreased from $128 million in FFY 2001 to $33 million in FFY 2002, or by 74%. This decrease is largely due to an 82 percent decline in discretionary spending, from $104 million in FFY 2001 to $19 million in FFY 2002. From FFY 2001 to FFY 2002, the TANF transfer to CCDF was cut by 25.7%. In Louisiana, recent childcare policy changes include increased co-payments, restrictions on the number of eligible families, and an increase in the number of hours parents must work to qualify for childcare assistance.

Mississippi

Population (July 2003): 2.9 Million

Total State Expenditures - SFY 2002: $10,521 Million (US Total: $1,073,816 Million)

TANF Expenditures - SFY 2002 (% of total): 0.7 % (US: 1.3%)

Medicaid Expenditures - SFY 2002 (% of total): 26% (US: 20.8%)

(Source: U.S. Department of Commerce, Census Bureau and NASBO 2002 State Expenditure Report)

Mississippi has the lowest fiscal capacity in the nation based on per capita personal income, representative tax system, and total taxable resources. Its poverty rate of 16.6 percent for 2001 is among the highest, exceeded only by New Mexico and Louisiana in the six sample states. However, in 2000 the proportion of children without health insurance was only slightly above the national average: 7.7 percent of children below 200 percent of the federal poverty level did not have health insurance, compared to an average state rate in the U.S. of 6.8 percent. Mississippi thus resembles South Carolina and West Virginia-whose percentages of children without health insurance are also near the national average-rather than New Mexico, Louisiana, and Arizona, where the percentages of children without insurance are much higher.

Although the state's poverty rate remains high, it declined greatly in the 1990s, from 25.6 percent in 1991 to 15.6 percent in 1999. Unemployment also dropped from 8.8 percent in 1991 to 5.1 percent in 1999, after which it rose to 6.8 percent in 2002. Major industries in the state have included automobiles, poultry, timber, and gambling casinos (on the river). The state's population grew more slowly than the national average: 5.5 percent between 1995 and 2002. Unlike most states, tax revenues grew every year between FY 2000 and FY 2003, though the rate of increase declined after 2000. The state has had a series of budget shortfalls due to rising needs as well as slow revenue growth.

State Budget Development and Implementation

The governorship has traditionally been weak in Mississippi. The office has no line item veto power. Thus, even though the state legislature only meets 90 days per session in the early spring, the legislature has long played the dominant role in developing and enacting the budget. However, the governor has significant control over its implementation and adjustments in the budget if revenues are lower than expected.

The state budget process lasts about one year. For the SYF 2005-06 budget the Legislative and Executive budget offices solicit budget requests from agencies beginning in July 2004. These requests will be submitted to both budget offices by August 1, 2004. Beginning September 2004 the Joint Legislative Budget Committee conducts budget hearings with top agency officials to review the requests. The Governor will submit the executive budget in November of 2004. The legislative budget recommendation will be released and published in November and December 2004. The legislative session begins in January 2005 and the appropriation bills for the FY2006 budget will be finalized and passed by April 2005.

The governor and legislature adopt a consensus revenue estimate drawing on (though not constrained by) revenue estimates provided by the Revenue Estimating Committee, composed of people from the executive and legislative branches as well as institutions of higher learning. Division directors develop budget requests based on what services are mandated and what services may be funded with what remains. By statute, the legislature can only appropriate 98 percent of projected revenue.

The governor has the authority to manage the budget during the fiscal year to ensure expenditures do not exceed revenues. Should revenue come in more than two percent short of projections through the current month, the governor must adjust spending to stay within projected revenues. The governor can make selective cuts to agency budgets of up to five percent to stay within revenue projections. State statute exempts several agencies from these cuts. Cuts exceeding 5% must be administered across the board.

The Department of Human Services (DHS) administers TANF, CCDF, Social Services Block Grant (SSBG), child welfare, and most other social welfare programs. Prior to FY 2005 DHS also determined eligibility for Medicaid and SCHIP programs. However, Medicaid and SCHIP are administered by the Division of Medicaid operating within the Office of the Governor. Until 1992, the Department was largely governed by an advisory board. But the legislature disbanded the board in that year and the governor was given greater and more direct control over DHS, including appointment of its director.

Nonetheless, legislators retain significant control over the Department's actions. The budget is very specific on programs, especially those they care about, such as Medicaid. Separate appropriation bills must be passed for each agency. Legislators also limit DHS's discretion over policies. Some state officials consider Mississippi's Medicaid program to be the most codified in the U.S., with reimbursement and coverage policies detailed in law-governing, for example, how many office visits as well as prescriptions are permitted per year.

DHS and its administration of major social programs are centralized. Most programs are administered by state officials through local state offices, not through counties or other local governments.

In recent years, as needs grew due to expanded enrollments in social programs and revenue growth slowed, the budget process became quite contentious between the legislature and the governor, even though both branches were controlled by Democrats from early 2000 to early 2004. A major source of uncertainty was Medicaid. Since SFY 2002, the Medicaid budget has faced recurrent deficits. At first, the shortfalls were covered with tobacco funds, but then some cuts were made in reimbursement rates to providers. More recently, Medicaid deficits have been alleviated by increases in the federal matching rate (FMAP) and last year's one-time federal grant to states. Medicaid has generally been protected from major cuts. Along with health care programs, other programs protected from significant budget reductions include economic development programs and, most of all, education, which takes up 62 percent of state general revenues.

Compounding the budget controversies has been the tendency of the legislature and the former governor to use different revenue projections. The former governor, for example, advocated reducing the revenue estimating committee's projection of SFY 2002 revenue growth to one percent, while the legislature adopted an estimate of 3.7 percent. In the 2003 session, most observers thought that legislators knew they had padded or overstated the budget. Over-projection of revenue forced the governor to cut agencies only after the legislature enacted the budget.

Mississippi's Response to Federal Welfare Reform

Mississippi began to reform its welfare programs with passage of a bill in late 1992, though its AFDC waiver request was not approved by U.S. Department of Health and Human Services until mid-1995. The waivers involved two programs, Work First and Work Encouragement. Work First, the larger program, made benefits contingent on fulfilling work requirements and introduced new mandatory processes for applicants. After the enactment of TANF at the federal level, the Mississippi legislature passed its TANF program, called the TANF Work Program (TWP), in early 1997. The debates over the early AFDC reforms and the TANF program were very divisive, especially along racial lines (Breaux, et al. 2000) and in the early 1990s, when the state legislature focused on out-of-wedlock births and marriage.

Mississippi's TANF program features immediate work requirements, time limits, full family sanctions, a family cap, and transitional child care and transportation services. Maximum cash benefits for a three-person family are $170 per month, which was increased from $120 in 2000, the only increase in the stipend in the last 26 years. In determining benefits, Mississippi disregards all income for some families for up to six months; otherwise, it disregards $90 of earnings. Its asset rules are somewhat more liberal than average: it disregards the entire value of one vehicle and $2,000 in assets beyond that. The state's sanctions are strict, however. Its first sanction for non-compliance with work requirements is imposed for two months, a longer than average duration for full family sanctions. The state does not have a diversion program. Its lifetime time limits (60 months) follow the federal law.

The low benefits, the severity of the sanctions, and early problems of implementation (such as complex applications processes involving multiple local agencies) probably contributed to the very large caseload declines of the 1990s-72 percent between 1995 and 2000. Since 2000, caseloads rose 23 percent through 2003. Yet, even with the caseload increases, TANF assistance plays a relatively small role in Mississippi's safety net. Only 1.3 percent of the Mississippi population received TANF assistance in 2001, compared, for example, to 10.7 percent of the population who received Food Stamps. Federal spending on Food Stamp benefits was 9.4 times greater in 2001 than total TANF assistance payments (Mississippi Department of Human Services 2003).

Mississippi's large decline in caseloads and its low benefits meant that it was able to accumulate large TANF surpluses. By 2000, the state could pay very little of its current year TANF grant on assistance. In fact, by 2001, it spent none of its current-year TANF grant on cash assistance. The surplus allowed the state, by 2000, to transfer the maximum amounts from TANF to CCDF and SSBG (30 percent of the grant in FFY 2002), and to increase other non-cash spending. In FFY 2002, major categories of spending under TANF included work subsidies, education, and training (25 percent); child care (37 percent, including the 20 percent transferred to CCDF); transportation and other supportive services (19 percent); and transfers to SSBG (10 percent).

In the last two fiscal years, however, moderate increases in caseloads have pushed up spending on TANF assistance, including cash payments, child care (for persons on assistance), and transportation services. The TANF block grant has also been used to fund additional programs while it pulled back from others. TANF thus serves as a "cushion" that agencies have used to fund high-priority items. For example, in FY 2004, about $26 million (about 27 percent of the annual block grant) was allocated to child welfare programs. Despite the attractive match rate for such programs (usually the same as under Medicaid), the state reduced its appropriations for this already cash-strapped, high-stakes service area-and TANF was used to compensate. By contrast, TANF funding was reduced or eliminated for several other programs in FY 2004, including fatherhood programs, SSBG, an adolescent offender program, some child care programs (not CCDF), education programs, and programs under the Attorney General.

During these tight budget years, the state has also struggled to satisfy its Maintenance of Effort (MOE) requirement. Among other things, they moved assistance families with two parents into a separate state program funded with MOE dollars (thus freeing $2 million in TANF), and they identified dollars spent in existing state programs that they could count as MOE. Such programs included certain university scholarships for low-income families, after-school programs, and mental health services.

Although TANF supports a wide array of services, "welfare" is still not a popular program in the state. The program is identified with minorities and the public perception is still that people do not want to work. Even state child advocacy organizations pay little attention to TANF per se. However, there have been effective advocacy efforts for child care, e.g., the Low Income Child Care Institute, run by a former director of the state Office of Children and Youth.

Other Federal Social Welfare Programs

Prior to FY 2005 the DHS's Division of Economic Assistance administered the Medicaid Program. However, the Division of Medicaid operating within the office of the Governor determines the Medicaid eligibility for the poverty level aged and disabled and for nursing home residents. Mississippi's spending per Medicaid enrollee is below the national average for all categories of enrollees, with the exception of nonelderly, nondisabled adults. The state's Medicaid eligibility standards are close to federal minimums; therefore, cuts in Medicaid enrollment or benefits are difficult. Tobacco settlement funds were used to fund the SCHIP program and eligibility expansions for the aged and disabled, allowing small expansions of benefits and increases in some provider payment rates.

Political support for Medicaid and SCHIP is strong. First, the programs have strong and organized proponents, such as hospitals, nursing homes, and doctors. Nursing homes, for example, beat back a recent legislative threat to reduce nursing home coverage. Among child advocates, SCHIP is the primary focus. The strong lobbying has been one reason why the Medicaid program is so "codified" and the executive director of the Medicaid division has so little control over the program.

Second, many people are enrolled in the programs: 25 percent of the population is on Medicaid; 57 percent of the children are enrolled in Medicaid or SCHIP. Outreach for SCHIP expanded enrollment in the regular Medicaid program (every child in SCHIP brought two children into Medicaid).

Third, the Medicaid program's match rate (3 to 1) is very attractive. One administrator makes the argument that the program is an economic development issue. Mississippi has also used intergovernmental transfers with Disproportionate Share Hospitals (DSH) funding to maximize federal dollars. In FY 2000, intergovernmental transfers constituted over 40 percent of the state share. The state share is funded through intergovernmental transfers and participating hospitals keep a fixed percentage of the revenues thus generated. The state began a new Upper Payment Limit (UPL) program for hospital reimbursement in 2000.

For all these reasons, Governors pay much more attention to Medicaid than to other human services, and legislators generally have a good relationship with Medicaid officials. (By contrast, Human Services has had three directors in the last three years and has not had a good relationship with the state legislature.) In 1999, Mississippi was the first state to establish a health care trust fund with money from the state's tobacco settlement. Mississippi's tobacco settlement funds are all targeted for health, about two-thirds of which is allocated to Medicaid.

Although Medicaid has been fairly well protected through SFY 2004, the legislature made some modifications and cuts in reimbursements. Some reductions were made in benefits, such as those involving eyeglasses and prescription drugs. In SFY 2004, the state faced a $90 million deficit, which was helped by an increase by the federal government in the state's FMAP rate.

It has been hard for Mississippi to hold spending down in Medicaid. There is a growing number of elderly in the state, especially those over 85. Expenditures per enrollee have grown, largely among recipients who cannot be dropped, including the elderly, the blind and disabled, and cash assistance children. The state is still doing SCHIP outreach, which brings in Medicaid applicants.

Pharmacy costs have also grown enormously, though some cost containment efforts have been underway. Other major sources of growth in costs include nursing homes, outpatient hospital services, hospices, and home and community based waiver programs. The state's managed care initiative was not very effective in holding down costs.

As a result of Medicaid's protection and growing costs, the program's spending has taken a growing share of the state's human services budget. Its share of the budget grew from 69 percent in 1998 to 75 percent in 2003.

The SSBG is federally funded and gets little attention from legislators, according to an administrator. It is largely used to support protective services, family planning, mental health services among other programs. The grants go to the agencies rather than the particular programs-so the block grant, like TANF, has provided state officials greater flexibility in shaping their package of social programs. However, the SSBG has declined even in nominal terms, from $23.4 million in 1998, to $16.4 million in 2004. As noted above, 10 percent of the TANF grant is transferred to SSBG, all of which goes to programs aimed at child neglect and abuse.

The CCDF is, as noted above, partly funded with TANF dollars. Before recent cutbacks, the program was able to support low-income working parents or students below 85 percent of the state's median income. But the eligibility level has been lowered to 50 percent of median income. Child care for TANF clients is automatic for those who are working, and there is one-year transitional benefit. There are extensive waiting lists for child care subsidies, about 12 thousand in the fall of 2003.

The state relies very heavily on federal dollars for child care, either from the CCDF or the TANF grant. Although CCDF allows states to put up state matches and draw down additional dollars, Mississippi has never been able to draw down the entire match. To increase the state's match, the agency (Office of Children and Youth) has used expenditures for Mississippi's lunch programs, reading programs, and others as MOE expenditures for TANF and CCDF. Child care does have some effective advocates, but legislators have mixed attitudes, and few pay any attention to developmental or quality issues.

Of the several divisions in the Department of Human Services, only a few rely significantly on state funding. Youth Services gets 68 percent of its funds from state general revenues; Economic Assistance gets 26 percent from general revenues; Family and Children's Services get 13 percent; while all the other divisions get less than 10 percent of their funds from the state. Thus, this low fiscal capacity state is very vulnerable to changes in federal spending.

Spending pressures from Medicaid will continue and probably grow with the increasing number of elderly people in the state. Since education spending is also strongly supported, pressures will fall on nonhealth services and administrative expenses in the human service system if revenues fail to expand as fast as overall spending. The state's child welfare system is strained already, yet there are few prospects for additional support. Mississippi's funding of nonhealth services will continue to rely heavily on federal funding.

New Mexico

Population (July 2003): 1.9 Million

Total State Expenditures - SFY 2002: $8,981 Million (US Total: $1,073,816 Million)

TANF Expenditures - SFY 2002 (% of total): 1.8% (US: 1.3%)

Medicaid Expenditures - SFY 2002 (% of total): 19.4% (US: 20.8%)

(Source: U.S. Department of Commerce, Census Bureau and NASBO 2002 State Expenditure Report)

Although New Mexico's per capita personal income is one of the lowest in the nation, the state does a good job raising revenue. The state's general fund recurring revenue collections are expected to increase by 8.1 percent in SFY 2004. Nearly 16 percent

of New Mexico's general fund revenues come from oil and gas production.

New Mexico has weathered the recent economic downturn well, experiencing only minor declines in revenue later than most states and maintaining an operating reserve well above five percent. The Department of Finance and Administration projects reserve balances will reach 9.6 percent of total recurring appropriations at the end of SFY 2004. State general fund revenues are expected to increase by 4.2 percent from SFY 2004 to 2005 due to abnormally high oil and gas prices as well as improvements in gross receipts, personal income, and corporate income tax collections. Projections suggest New Mexico's revenue will flatten from 2006 to 2008 as oil and gas prices decline and recent reductions in personal income taxes are phased in.

As noted earlier, New Mexico had one of the highest poverty rates in the nation in 2001, with approximately 17 percent of the state's population living in poverty, compared to 11 percent for the nation. New Mexico's unemployment rate is typically higher than most states. However, New Mexico performed better than the nation and most states during the recent economic downturn. In 2002, New Mexico's unemployment rate fell below the national rate and in 2003 and the first few months of 2004, unemployment rates in New Mexico have been only slightly above the national level. New Mexico employment growth has consistently been among the top five among all western states during the last year.

State Budget Development and Implementation

New Mexico's budget cycle begins with the executive budget agency sending funding targets to state agencies for their budget requests. The executive budget proposal typically includes agency budget recommendations by functional category. The Legislative Finance Committee, the fiscal arm of the state legislature, releases its budget proposal at the same time the governor releases the executive proposal. The executive budget agency and staff of the Legislative Finance Committee present their budget proposals to members of the state legislature in public hearings. State legislators then negotiate and pass a budget bill that is sent to the governor for signature.

Several characteristics of New Mexico's budget process provide the governor significant authority in budget development. Many state officials cited the governor's line item veto authority, which in New Mexico includes the ability to veto selected lines and items in any bill that appropriates funds, as the primary source of the governor's authority. For Governor Johnson, New Mexico's governor from 1995 to 2003, this authority was enhanced by his ability to sustain vetoes from legislative overrides. Johnson vetoed more than 700 bills while in office, including budget bills and social welfare proposals. Several state officials interviewed characterized Johnson as a "fiscal conservative" who used his veto authority to suppress social welfare spending. For example, the governor vetoed a 2002-03 budget bill because it did not sufficiently control Medicaid spending, among other reasons.

New Mexico's treatment of federal funds in the budget process also provides the state's governor increased authority over spending decisions. New Mexico is one of few states that does not appropriate all federal funds, thus limiting the legislature's ability to influence spending decisions. Additionally, the governor has authority to spend unanticipated federal funds without the legislature's approval.

The New Mexico Human Services Department administers the state's TANF, Medicaid, and SCHIP programs. Other public welfare programs such as child care, child welfare, adoption, and foster care are administered by the Children, Youth and Families Department, a separate state agency.

New Mexico's Response to Federal Welfare Reform

Welfare reform in New Mexico was a legal and philosophical struggle between the executive and legislative branches of government. The Johnson administration started work on its welfare reform proposal before the federal government enacted the Personal Responsibility and Work Opportunity Reconciliation Act of 1996. The administration's first proposal included several "work first" requirements that the federal government was considering for federal welfare reform including a lifetime limit on receipt of cash benefits, job search requirements, and a limit on the amount of education and training a recipient could apply toward work requirements. Johnson's "work first" reform bill died in committee in early 1996.

The Johnson administration began implementing its reform package in October 1996 without the legislature's approval by using regulatory changes. The first measure to go into effect required welfare applicants to register for work with the state's Department of Labor. Additional requirements implemented by regulations in July 1997 include a three-year lifetime limit on the receipt of cash assistance, requiring recipients to be in a work activity within 60 days of receiving assistance, and new income eligibility requirements such as counting federal housing subsidies and the income of all household members, including those not in the assistance unit, when determining eligibility.

The legislature responded by passing welfare reform legislation that softened several of the measures scheduled to go into effect in July 1997. For example, the legislative proposal included a five-year lifetime limit on the receipt of benefits, instead of the administration's three-year limit, and gave recipients two years to find employment before participating in mandatory work activities or facing penalties. The legislature also tried to stop the administration's reform efforts by inserting language into budget bills that tied the state's $35 million general fund appropriation for welfare to passage of the legislature's welfare reform bill. Governor Johnson ultimately vetoed the legislature's proposals.

In late 1997, New Mexico's Supreme Court ruled in favor of three state legislators and others who argued that Governor Johnson violated the state Constitution's separation of powers provisions when he implemented his welfare reform policies without the legislature's consent. This ruling required the administration to suspend implementation of its reform regulations. The administration ultimately reverted back to the state's pre-TANF welfare program. This ruling was the catalyst that brought the governor and legislature to agree upon a reform package that was enacted in February 1998. This agreement looked much like the federal law. The executive and legislature's struggle over welfare reform did not end with passage of the 1998 act. It continued in the budget process where the legislature pursued expansions to the state's welfare benefits and spending, and the executive pursued fiscally conservative policies.

Other Federal Social Welfare Programs

When research staff interviewed state officials for this project in September 2003, many cited New Mexico's growing Medicaid program as the most pressing issue for the state's social welfare programs. In 2002, Medicaid was one of the largest programs in the state budget, second only to k-12 education spending. In that same year, the program provided health care coverage to one of every five people in New Mexico. The state's general fund spending for Medicaid increased 55 percent from $263 million in 2000 to $407 million in 2004. During that period, New Mexico's Medicaid costs periodically exceeded projections in enacted budgets requiring additional appropriations during the state fiscal year. State officials noted that the cost drivers for New Mexico's program are the same as the rest of the nation including pharmacy costs, personal care services, facility based services, and others. Several officials indicated that New Mexico has not kept pace with others states in instituting measures to control Medicaid costs.

According to Governor Richardson's 2005 executive budget proposal (Richardson took office in January 2003), "without additional cost containment measures and revenue enhancement measures in SFY 2005, the New Mexico Medicaid program will require $115 million of General Fund over what is required for SFY 2004. This increase is greater than the current consensus revenue estimate of increased General Fund revenue for all of state government in SFY 2005." The executive proposal recommended a $54.7 million increase in state funding for Medicaid; $25.7 million in revenue enhancements including bed assessments for nursing homes and hospitals, and increasing the medical insurance premium tax from three to four percent; and cost saving strategies such as a reduction in benefits, increased co-payments, and re-certifying program eligibility every six months rather than every 12 months. Governor Richardson's proposals to increase the premium tax and assess a surcharge on nursing home and hospital beds were passed by the 2004 Legislature and signed by the governor.

Governor Richardson is also spearheading an effort to reform the state's healthcare system to extend coverage to the uninsured through a pooling system. Also noteworthy are the administration's efforts to consolidate children's behavioral health services, which include collapsing funding from many sources for multiple services into one "super" request for proposals.

South Carolina

Population (July 2003): 4.1 Million

Total State Expenditures - SFY 2002: $14,894 Million (US Total: $1,073,816 Million)

TANF Expenditures - SFY 2002 (% of total): 0.2 % (US: 1.3%)

Medicaid Expenditures - SFY 2002 (% of total): 22.6% (US: 20.8%)

(Source: U.S. Department of Commerce, Census Bureau and NASBO 2002 State Expenditure Report)

South Carolina has low fiscal capacity as measured by per capita personal income, representative tax system, and total taxable resources. Its poverty rates have been above average-12.7 percent in 2001, compared to 11.1 percent in the U.S. as a whole-though they have not been as high as most of the other poor states in the site visit sample (e.g., New Mexico, West Virginia, Mississippi, and Louisiana all have poverty rates in 2001 well over 15 percent). The proportion of children without health insurance was close to the national average in 2000.

But the state has suffered more than other low fiscal capacity states from recent increases in social needs. Between 2000 and 2003, the state's average monthly unemployment rate increased by 80 percent, from 3.8 percent to 6.8 percent, the largest increase among these six states. Welfare caseloads increased 17 percent between 2000 and 2002. Population growth has been moderately high, with a 9.6 percent increase between 1995 and 2002. The state's population is also aging more rapidly than other states (a change that puts great demands on Medicaid spending). Fiscal years 2001 and 2002 showed a 3.1 percent drop in revenues, a large decline for poor states.

State Budget Development and Implementation

South Carolina's budget process is dominated by the legislature. The governorship is one of the weakest in the nation. Until 1977, governors served only one term, so legislators were around much longer and exerted greater influence. In 1993, the Restructuring Act created eight appointed cabinet positions (the positions were elective before then). The state's governor submitted a budget for the first time in 1993.

Nonetheless, the legislature routinely ignores the executive budget. The budget process really begins with hearings with agency officials before the subcommittees of the House Ways and Means Committee. The subcommittees then get together and make recommendations to the full committee, which sends the budget to the full House. The chamber typically makes few changes in the committee's recommendations before passing the budget. The Senate develops its own budget more or less autonomously and in parallel. Differences between the two chambers-often large-are worked out in conference sessions.

The Senate is generally more supportive of social services than the House, partly due to the longtime leadership of the Senate Finance Committee chairperson, who has long been a strong supporter of Medicaid. His influence reflects another difference between the two chambers: the Senate tends to be dominated by seniority and individual senators, while the House is more controlled by committees and subcommittees. The greater role of subcommittees and committees in the House may account for its reported tendency to delve into greater budgetary detail than the Senate. For example, the House was said to look at performance measures more than the Senate. In recent years, the House also is reputed to ask more questions, look at more options, question Medicaid officials more skeptically, and look for evidence of fraud, abuse, or waste. Nearly all lobbying regarding social programs and the budget is directed at the legislature, not at the executive.

For the first time in the state's history, the government is entirely controlled by the Republican Party. Republicans won the House in 1994, the Senate in 2000, and the governorship in 2002.

The Department of Health and Human Services (DHHS) is the single state agency designated to administer Medicaid and SCHIP. The Department of Social Services (DSS) administers TANF, Food Stamps, child welfare services, foster care, child care licensing and regulation, adoption, adult and child protective services, and child support enforcement, CCDF, and SSBG. When the budget process involves budget cuts, agencies are generally instructed what percentage of their budgets must be cut, not exactly where, though this is less true for Medicaid, whose details are of greater interest to legislators. Mid-year cuts have been frequent in recent years; instructions specify a percentage to cut in agencies' budgets. Education and Medicaid traditionally have been exempted from mid-year reductions, though Medicaid is no longer exempt. Medicaid, unlike most other social programs, is allowed to run a deficit. Large and unexpected Medicaid deficits in recent years have hurt DHHS's reputation for management, though they have been paid.

Both DHHS and DSS administer contracts or agreements with other agencies to implement programs using funding streams they administer, especially Medicaid and TANF. Medicaid provides funding to 12 other agencies or institutions, the largest sums going to the Department of Disabilities and Special Needs, the Department of Mental Health, the Department of Education, and the Department of Social Services. DSS administers its programs through a variety of governmental entities. TANF, child and adult protective services, and foster care are administered by counties, while central or regional offices handle adoptions, licensing, and child support enforcement.

South Carolina's Response to Federal Welfare Reform

South Carolina's welfare reform program - known as the Family Independence Program (FIP) - was implemented in October 1996 as an AFDC waiver. The waiver remained in effect until September 2003. The cash assistance program is limited in duration to 24 months out of 10 years and no more than 60 months in a lifetime. To qualify, a family of two must have income less than $480 per month (or only $5,800 per year); once a family's earnings exceed the income limit ( the equivalent of 30 hours per week at minimum wage for a family of two), it is no longer eligible to receive assistance. Maximum benefits are only $204 per month for a family of three, an amount that has not changed in 15 years. Families who leave welfare due to earnings may receive up to two years of child care, transportation assistance, and other work-related expenses. The state's welfare caseload declined sharply after FIP was implemented-by 39 percent between 1998 and 2000. However, between 2000 and 2003, the average number of families per month increased by 25 percent.

Under the waiver, South Carolina could exempt recipients who were not "determined able to engage in work" and who were not provided transportation and child care services. They could count a wider variety of activities as meeting the participation requirement than they can under TANF. Officials expect service spending to go up as a result of the lapsed waiver.

The legislature was involved in establishing time limits, reasons for exemptions, extensions, and other such policies. But once welfare reform was completed, legislators lost most interest in TANF. In recent years, relatively minor changes were made as DSS promulgated regulations, which the legislature would review and pass, often with little debate. One exception to the general tendency of the legislature to show little interest in TANF occurred when it recently directed DSS to spend part of the TANF grant on abstinence-only pregnancy prevention programs.

Other than these actions, however, the legislature has given DSS discretion in using the TANF block grant to meet the purposes of the TANF program. The TANF surplus grew during the period of 1996 through 1998. Beginning in 1999, an increasing variety of programs were funded under the block grant, such as "First Steps," a school readiness program that provided services to pre-first-grade children and their families (this program also received general fund dollars).

In response to the economic downturn, the legislature severely cut the DSS budget. The DSS "base budget" was first reduced from $119 million to $102 million between SFYs 2001 and 2002. It declined further to $94 million in SFY 2003 and then to $78 million with the recently enacted budget for SFY 2004. These cuts were largely dealt with by cutting a variety of service contracts; by eliminating an agency that administered pregnancy prevention and after-school programs; and by reducing staff in the department. Positions were cut by 33 percent between January 2001 and June 2004-and by using TANF where allowable to cover the costs of "high-stakes" programs involving children-at-risk, such as foster care and emergency shelters. DSS also instituted a two-week mandatory unpaid furlough for all staff for the fiscal year ending June 2004.

South Carolina transfers a comparatively small share of its federal TANF grant and state MOE dollars to child care programs (about $4 million to CCDBG annually). It typically transfers a larger share to SSBG. Currently, TANF does little contracting for services. Virtually no legislative lobbying occurs on TANF issues.

Other Federal Social Welfare Programs

The state's Medicaid program plays a central role in South Carolina. It provides benefits to 20 percent of the population-including 40 percent of all children-and pays for 50 percent of all births. One-third of the state's senior citizens receive support from the program, and 75 percent of all nursing home beds are paid for by Medicaid.

Although 74 percent of the people eligible for Medicaid are low-income families, children, and pregnant women and infants, only 36 percent of the expenditures are for such categories. Elderly and especially disabled people are much more expensive to treat. Thus, though they constitute only 26 percent of the eligibles, their total expenditures make up 64 percent of the Medicaid budget.

Medicaid spending increases have closely correlated with changes in the number of recipients over time. Both spending and recipients rose modestly from 1994 to 1997 but grew more rapidly thereafter, even through 2003. There has also been some increase in spending per case, due to increases in pharmaceutical costs and the proportion of clients who are elderly.

The lobby for Medicaid is extensive, including representatives of hospitals (association and individual hospitals), nursing homes, doctors, the pharmaceutical industry, AARP, and other advocacy organizations. Strong grass roots support also exists, especially for programs that provide intensive services to families (such as Continuum of Care, which supports severely disturbed children).

Two other factors also protect the Medicaid program from major cuts: the state has an attractive match rate (about 70/30), and the program is "not an elaborate one," as one official noted. Although the state's program provides some optional services and supports some optional groups, many of the services are either mandatory or provided to hard-to-cut groups. As legislative staff noted, "It's hard to cut nursing beds and maternity services. The constituencies would come out of the woodwork."

The programs funded by state's CCDF constitute a centralized, voucher-based system. It relies much more on federal than on state dollars and was thus not much affected by the economic downturn. It supports foster care working parents, child-protective services families under certain conditions, Head Start, TANF and transitional child care for welfare leavers, and teens going back to school. Slots for the non-TANF (and nontransitional) working poor are well below need levels: only 3,000 slots can be funded, compared to 80,000 eligibles. Despite the fact that child care has not been cut to date, there were discussions about reducing transitional assistance from two years to one after families leave TANF. But the cuts have been resisted partly because child care is viewed as one of the few significant benefits provided to TANF families. Like TANF, there are few advocates for child care, and the program is not on the legislature's "radar screen."

The Social Services Block Grant gets 10 percent of the TANF grant and focuses on mandated services: child and adult protective services, foster care, and various support services. Federal funding has declined in real as well as nominal levels since the mid-1990s. To deal with the declines, staffing and administration were cut, and programs were eliminated that were local in coverage (rather than statewide) and that had weaker performance records.

As noted above, child welfare programs were cut by the legislature in recent years-one of the larger items being foster care board payments and therapeutic provider rates. As a result of these cuts, DSS is using TANF funds to meet Title IVA-EA costs to the maximum extent allowable.

South Carolina's Medicaid spending is likely to grow well into the future, as its population is aging more quickly than in other states. Greater competition for TANF funds is also likely. Since the state's AFDC waiver expired and the state was forced to restrict countable activities to work, work-experience, and community service, demands for job services and child care were likely to increase. State tax revenues have begun to grow again in SFY 2004. But the state's reliance on consumption taxes may dampen long-run revenue growth as the shift from goods to services and to purchases through the Internet reduce the base for such taxes. Education programs are a very high priority among elected officials, and such programs may, along with Medicaid, crowd out nonhealth social programs.

West Virginia

Population (July 2003): 1.8 Million

Total State Expenditures - SFY 2002: $8,150 Million (US Total: $1,073,816 Million)

TANF Expenditures - SFY 2002 (% of total): 2.5 % (US: 1.3%)

Medicaid Expenditures - SFY 2002 (% of total): 19.8 % (US: 20.8%)

(Source: U.S. Department of Commerce, Census Bureau and NASBO 2002 State Expenditure Report)

West Virginia's per capita personal income has been one of the lowest in the nation for the past twenty years. West Virginia did not benefit as much as other states from the economic boom of the late 1990s probably because its personal income tax is not as heavily dependent on the stock market. The recent projected state budget deficits for SFYs 2004 and 2005 have forced state officials to make difficult cuts.

West Virginia is also a high need state by most standards. The state's poverty rate has been one of the highest in the nation since 1995. Unemployment in West Virginia has also been consistently higher than the national rate, although it has decreased from 6.6 percent in 1998 to 4.8 percent in 2001, and again increased to 6.1 percent in 2003. West Virginia's labor force participation rate is especially low, ranging from 50 to 55 percent since 1995, compared to 63 to 65 percent for the nation. This may reflect large number of unemployed individuals who have stopped looking for work, as well as an aging population.

State Budget Development and Implementation

West Virginia's executive budgeting model provides the governor and executive agencies with much authority in budget development and implementation. Significant gubernatorial authority includes sole responsibility for establishing revenue estimates, line item veto, and the ability to extend the legislature's regular session if they do not enact a state budget before the new state fiscal year. The state's budget process begins with the governor's central budgeting agency releasing guidelines for agency budget requests for the upcoming fiscal year. These guidelines have included cuts of three to ten percent across agencies due to recent declines in state revenue. The governor's budget proposal is a compilation of agency budget requests developed to meet the executive's goals.

The legislature's authority in the budget process is limited by legal prohibitions to changing the governor's revenue projections and creating a deficit. The legislature's changes to the executive budget proposal must be cost neutral - an increase in funding in one area must be accompanied by an equivalent cut in another area. Limited staff to examine the governor's budget proposal and track agency administration of programs also restricts the legislature's influence.

The Department of Health and Human Resources administers a range of public welfare programs including TANF, child care, child welfare, adoption, and foster care. In West Virginia Medicaid and SCHIP are administered by two different agencies: Medicaid is administered by the Bureau of Medical Services within the Department of Health and Human Resources, whereas SCHIP is administered by the Children's Health Insurance Agency within the Department of Administration.

Two factors have converged to provide the Department of Health and Human Resources influence and autonomy in developing and implementing the state's social welfare budget. First, the governor's executive budgeting agency and legislature have limited staff to oversee the Department and must rely heavily on the expertise of Department staff during all phases of the budget process. Second, the state's budget typically appropriates funds at a broad level rather than itemizing funding in detailed appropriations, which are legal mandates restricting flexibility in budget implementation. This approach gave the Department significant authority to allow a large surplus of TANF funds to accumulate when caseloads plummeted in the late 1990s and to allocate the state's surplus TANF funds to programs and services when West Virginia started to spend down these dollars.

West Virginia's Response to Federal Welfare Reform(3)

West Virginia's response to federal welfare reform encompassed three phases. In the first phase, West Virginia officials designed the state's early TANF program to reduce caseloads to minimize financial risks associated with the new block grant structure of TANF and federal penalties for not meeting federal work participation rates. The state experienced a dramatic 71 percent decline in caseload from 1995 to 1999, compared to 45 percent for the nation. Specific policies that contributed to this decline included 1) more restrictive income eligibility guidelines (reducing the state's monthly eligibility threshold from $498 to $420 a month and counting SSI as income - the SSI requirement was later overturned by court and legislative action), 2) changes in administrative procedures requiring AFDC recipients to re-certify eligibility in early 1998 and instituting a more complicated application process, and 3) clear "work first" signals including a full-family sanction for non-compliance with work requirements.

Like most states, West Virginia amassed a surplus of federal TANF funds due to the block grant structure of the program and caseload decline. By the spring of 2000, the state's $160 million TANF surplus exceeded its $110 million annual federal block grant. This surplus of federal funds coupled with the flexibility in the final TANF regulations, provided incentive for the state to expand its TANF program, the second phase. Significant changes to West Virginia's TANF program during this period included: 1) an increase in income disregard rates from 40 to 60 percent, 2) a gradual, $200 increase in monthly cash assistance payments, 3) more generous diversion payment of up to four months of cash assistance payments, and 4) new supportive services to TANF recipients and others at risk of TANF recipiency. In addition to efforts to expand eligibility and services, West Virginia sought ways to use its federal TANF funds to support TANF-eligible services in its foster care and child protective services programs that had been funded with state funds. The state's TANF caseload began to increase during this period, earlier than in most states, yet it remained approximately half the 1995 pre-TANF level of 39,231 cases.

The third phase of West Virginia's TANF program was marked by budget deficits and the need to limit program expansion. In early 2001, the West Virginia Department of Health and Human Resources announced a projected $90 million deficit in the state's TANF program for federal fiscal year 2003. This announcement and subsequent efforts to restrain spending attracted media attention.

The state used an open process to tackle the projected deficit which included a TANF advisory council of non-profit stakeholders, advocates, and state officials appointed by Governor Bob Wise to recommend a cost reduction plan. The Council recommended a series of cuts to TANF funded benefits and services, giving priority to fund those services that were more closely aligned with goals one and two of the federal TANF program - to assist needy families and promote employment. Changes recommended by the Council that have been enacted include reducing the state's 1) earned income disregard rate from 60 to 40 percent, its previous level, 2) child support pass-through from $50 to $25 a month, and 3) eligibility for services to individuals not in receipt of TANF from 185 to 150 percent of federal poverty level. The following recommendations have met resistance from stakeholders and have either been taken off the table or scaled back 1) use non-TANF funds to support $43 million in foster care and other services provided by the Bureau of Social Services - these services were previously funded by a TANF transfer 2) discontinue $27 million in contracts with mostly community-based organizations for supportive services, 3) reduce eligibility for child care services, and 4) eliminate the state's marriage incentive of $100 a month.

Other Federal Social Welfare Programs

West Virginia spends more on its Medicaid program than any other single area of the state budget except for elementary and secondary education. Several state officials characterized the Medicaid program as an integral part of the West Virginia's health care system. It funds approximately 55 percent of the state's births. West Virginia's Medicaid program has been plagued with budget shortfalls. In general, the governor and legislature have been hesitant to cut coverage preferring instead to rely periodically on state funds set aside for changes in federal programs, funds from the state's tobacco tax, and attempts to control utilization. West Virginia has a Health Care Provider Tax that dates back to 1993. This tax continues to be a source of contention between the state and the various health care providers that are taxed.

The start-up and administration of West Virginia's SCHIP has been a source of contention. The state was slow to ramp up its SCHIP program due to problems inherent to starting a new program and fear that SCHIP would expand the state's already costly Medicaid program. From July 1998 to October 2000, West Virginia expanded its program to cover all children in households with income from 150 to 200 percent of the federal poverty level. SCHIP became a high profile item when Governor Bob Wise campaigned on a platform that included improving the program's enrollment. West Virginia's SCHIP program was one of only a few spared from the executive's directive to cut SFY 2005 state agency funding requests by 9 percent.

[ Go to Contents ]

Endnotes

(1) Information in this section is from Nelson A. Rockefeller Institute of Government field reports written by John Hall et. al. (1997 and 2002) , public documents, and interviews with state officials.

(2) The eleven agencies are: Department of Corrections, Department of Education, Department of Economic Development, Department of Health and Hospitals, Department of Social Services, Governor's Office of the Workforce Commission, Louisiana Community and Technical College System, Governor's Office of Women's Services, Supreme Court, Governor's Office of Community Programs, and Louisiana State University. The TANF initiatives are targeted towards programs and services involving literacy, employment and family stability.

(3) Information in this section is from a Nelson A. Rockefeller Institute of Government field report written by Chris Plein (2002), public documents, and interviews with state officials.


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