Welfare reform: doing well, trying to do better; welfare reforms have been quite successful, but there's much more to do. Moving ahead in tight budget times, however, is a daunting task for lawmakers.

• Author: Tweedie, Jack

Two years ago, as the economy started to deteriorate, Arizona Senator Ruth Solomon faced a cruel irony. She became chair of the Appropriations committee. In her new job, she had to significantly cut a program that she sponsored earlier in her career-providing substance abuse treatment to parents in the welfare and child welfare systems. Arizona's budget deficit was almost $1 billion, and caseloads had jumped. Many welfare-funded programs had to be cut to pay for increases in cash payments and to balance the state budget.

Such hard choices for legislators are growing more common as deficits deepen. Forty-three states had budget gaps in FY 2002. In 13 states, the shortfall was more than 10 percent of general fund spending. Already many states have exhausted their rainy day funds and tobacco settlement money. Although few states had to cut their Temporary Assistance to Needy Families (TANF) spending last year, FY 2003 will be a different story.

Legislators across the country face a changed environment in 2003. Welfare caseloads have ended their steep decline, and many officials are worried that the weak economy will spur spiraling increases. Unlike previous years, most states have now spent down their reserve welfare funds. Very few have reserves large enough to respond to a substantial caseload increase. And state policymakers are also waiting to see what changes federal officials will make when they re-authorize TANF.

In this difficult setting, legislators are looking to continue progress in welfare reform: providing intensive services to help clients with severe barriers move off welfare; helping parents who leave welfare for a job to keep that job and increase their earnings; and developing services for working families that improve child well-being, lessen the chance the family will need welfare in the future, and reduce teen and out-of-wedlock pregnancy.

A PLATEAU IN ARKANSAS

Arkansas legislators are asking what they can do to strengthen welfare reforms. Like many states, Arkansas was successful early on in moving parents off cash assistance and into jobs. Under its reforms, caseloads dropped by 56 percent from 1994 to 2002. In half the cases, it was because parents were working.

But efforts have stalled, caseloads have stabilized, and there hasn't been an increase in the percentage of parents leaving welfare for jobs. Many lost their jobs after a few months, and more than a quarter returned to the welfare program. Those who kept working were slow to get raises. A year after leaving welfare, more than 80 percent were still in poverty (earning less than $15,700 for a family of three).

"It seems like we reached a plateau," says John Selig, deputy director in the Department of Human Services. "We are struggling to find a way off that plateau."

Legislators are concerned that some families are being left behind, particularly those with substance abuse and mental health problems.

"I don't see how we have done much to help parents who struggle with substance abuse," says newly elected Senator Tracy Steele, who chaired the House Public Health and Welfare committee last session. "We have to figure out how to get services to them or we are not going to succeed."

But can Arkansas do more given its current fiscal situation? The state faces a substantial budget deficit this year. With all its new programs, it has only a small reserve of unspent welfare money. Medicaid spending has risen dramatically, and officials expect the Arkansas Supreme court to order an increase of at least $500 million in education spending.

Legislators worry that they are going to be unable to respond to proposed changes in the federal TANF program, particularly if states are required to sharply increase the number of recipients who are participating in work activities.

"This is a critical issue," says Senator Bill Walker, chair of the Senate Public Health and Welfare Committee. "We need all our...