Will welfare reform hold up?: With a recession in progress and caseloads increasing, we will soon know if reform has truly transformed the welfare system.

• Author: Tweedie, Jack

What happens to welfare when the economy slows down?" That question has been on the lips of state policymakers for several years. Everybody knew the strong economy could not last.

Now with a recession here, officials are faced with increasing welfare cases at the same time state revenues are dropping and budgets tightening. The recession and the ripple effects from the terrorist attacks provide the true test of welfare reform. Has the system been fundamentally changed?

clear answers will come slowly as we see how long the recession lasts and witness its effects on state budgets, welfare caseloads, and the employment and earnings of parents who have left the rolls. Here is what we know now:

* The U.S. economy is in a recession that officially started in March 2001. Eleven state economies have been in contraction since at least December 2000. Unemployment has increased by at least one percentage point in 21 states since the beginning of 2001.

* Most state budget outlooks are deteriorating. As of last November, revenues were below projections in 44 states. And in 22, the pace of spending was over budget. Almost two-thirds of the states have instituted cuts or freezes, and half already plan to draw on reserve funds.

* Nationwide welfare cases hit lows in July 200 1--60 percent down from their high in January 1994. By September 2001, 23 states had caseload increases in the past 12 months, and 34 had increases in the past three months.

* Families in 28 states hit or will hit time limits between Oct. 1, 2001, and July 1, 2002. Twenty states had time limits of two or three years, and many families have already reached those limits. This year will see a steady stream of states reaching their first set of time-limited cases.

* Most parents (around 60 percent) who have left the welfare rolls are employed. But few earn more than the poverty line. Most of them work in service and retail jobs that are vulnerable to recession and the fallout of the terrorist attacks.

* congress will take up reauthorization of the Temporary Assistance for Needy Families (TANF) block grant this year. It will probably be late fall and after states complete their budgets before we know whether TANF funding levels will be maintained for federal FY 2003 and beyond and whether new restrictions on state spending will be added.

These are the challenges that face legislators working on welfare reform as they enter the 2002 sessions. And states' experiences will vary considerably, depending on economic situations, budgets, and TANF spending and program choices. By the end of the year, we will know much more about the fate of welfare reform. Despite the uncertainty facing state reforms, there are reasons for confidence that the state and federal changes truly transformed the system, and the progress of welfare reform will continue.

RECESSION AND UNEMPLOYMENT

The National Bureau of Economic Research announced in late November what everybody already knew, that the economy was in recession and had been since March 2001. The recession has hit employment hard. Fewer jobs are available for parents on welfare, and many who had left welfare are being laid off. In the past year, unemployment rates increased in 42 states and the District of Columbia. In 21 states, the increase was at least 1 percent. In South Carolina, Indiana and Nevada, it was more than 2 percent.

The terrorist...