Net Loss: Secondary Effects of City Budget Cut Proposals

Chapter 4. Impact on the Poor: Welfare

Gauging the impact of cuts in welfare programs is difficult, not only because the size of the cuts is uncertain but also because the scope of the proposed cuts is unprecedented. Cuts are being considered, and program reform is being undertaken, at the City, State, and Federal levels. We are primarily concerned with budget cuts considered by the State and City. But if the proposed Federal budget cuts are enacted, funding for a large percentage of children currently on welfare will be cut, as will child-care and child-nutrition funding.

Of the many proposed City and State budget cuts, we address three. They represent about two-thirds of the $760 million in non-medical welfare cuts:

  1. The time limit on employable Home Relief (HR) recipients.
  2. The limitation of eviction-prevention, rent arrearage grants to four months for AFDC, HR and non-public-assistance households, and elimination of rent-arrearage grants for all SSI recipients.
  3. The elimination of rent-supplement payments resulting from the "Jiggetts" court case.

Other proposed cuts are even more difficult to gauge for their impact and cost-effectiveness. For example, the basic grants for AFDC recipients and unemployable HR recipients will be cut 25 percent, costing the average three-person AFDC family about $50 per month and the average HR recipient about $34 per month.

In addition to the across-the board cuts, limitations or cuts are proposed for: emergency grants for utility arrears; cost-of-living allowances for 340,000 federally certified blind, handicapped, and disabled persons in the City; and supplemental energy grants for

recipients living in public housing. Also, State assistance to the City for helping homeless or doubled-up families to relocate will be cut by 50 percent. These cuts are significant, but their effects are more diffuse and hard to quantify.

1. The Time Limit on Employable HR Recipients

The Governor proposed that HR recipients deemed employable be limited to 90 days of HR payments in any 12-month period. The proposal was amended so that the 90-day time period for employable recipients currently on HR would end April 1, 1995. The City's Preliminary Budget proposed limiting HR for employable adults to 90 days within a 24-month period. The State Senate proposed decreasing the allotted HR period from 90 days to 60 days. The 90-day limit is estimated by the Governor to save the State $204 million annually and local governments a similar amount. Roughly 75 percent of the State's welfare budget is spent in the City.

To quantify both the savings and costs of the cut, we must first estimate how many people will lose benefits. This is not easy. As of March 1995, 233,323 people, almost all single adults, received HR in the City. HRA has stated that it classifies roughly 134,000 recipients as employable.

However, it is unlikely that all 134,000 "employable" recipients will be left without some form of public assistance. HRA says that thousands of HR recipients could probably qualify for SSI payments, shifting the cost to the Federal Government. Historically, applying and qualifying for Home Relief has been easier and less bureaucratic that applying for Supplemental Security Income. Moving recipients to SSI would free the City of these peoples' expense and allow them to continue receiving support payments. In addition, some of those now considered employable will probably be reclassified and allowed to remain on HR.

Few estimates have been made of the number of HR recipients who will be cut from the rolls as a result of a 90- or 60-day time limit. The City estimates that 16,000 HR recipients will be stricken from the rolls. But a widely used figure is 80,000 recipients, as estimated by Liz Krueger of Community Food Resources, Inc. HRA itself has yet to issue a public estimate. The State Senate, which adopted the 60-day limit, has produced an estimate, from which the number of stricken recipients can be extrapolated. The Senate's legislative report estimates that $82.6 million will be saved by the City as a result of removing Home Relief recipients after 60 days.[67] As noted above, the State matches the City payments for HR. Thus, the State will save $82.6 million as well, for a total savings of $165 million. This amount equals the 10-month period not paid to each stricken recipient. As noted later in this section, HR recipients will receive a monthly average of $293 under the State proposal, so the combined State/City savings will be $2,930 per stricken recipient (10 months X $293/month = $2,930). Dividing the total $165 million projected savings by the $2,930 saved for each stricken recipient equals 56,313 stricken recipients. For the City actually to achieve these savings, the 56,313 who are removed from HR will have to get jobs or find some other means to survive so that they don't become dependent on the City government in some other way.

How many of those described by HRA as "employable" will in fact become employed? The Center on Social Policy and Law has analyzed a range of State efforts to automatically cut large segments of single-adult welfare rolls.[68] In most cases, "employable recipients" were determined afterwards to be either unemployed, homeless, or sick. The Center notes that the same will likely happen in New York State. The Center's findings also suggest how hard it will be for HR recipients to find jobs. Nearly half of all employable HR recipients in the City never finished high school, 20 percent are not fluent in English and 21 percent are illiterate. Currently, the City is not generating a large number of low-skilled jobs that would provide opportunities to this group.

Similar cuts in other states show mixed results. There is the widely discussed draft analysis, written by the University of Michigan School of Social Work and funded by the Ford Foundation, of the State of Michigan's 1991 elimination of the Michigan equivalent of HR.[69] Some 80,000 single Michigan adults were stricken from the rolls in 1991 and 1992. About 80 percent of the group were reported by the study to have been unable to find permanent employment. Of those removed from Michigan's HR rolls, 30 percent were eventually placed on other types of disability payments, primarily federal Supplemental Security Income. However, New York State's program distinguishes between employable and unemployable HR recipients, whereas Michigan's program did not. What effect this has on the transferability of study results from Michigan to New York is difficult to gauge.

In contrast to the Michigan experience, Westchester County and the State of Ohio are said to have had at least initial success with removing single adults from welfare rolls without causing apparent widespread dislocation.[70] Ohio slashed its single-adults welfare rolls from 142,000 in 1992 to 69,000 in 1994. As New York proposes, Ohio imposed limits on the amount of time recipients could be on welfare in any 12-month period. Ohio cuts its recipients off in 6 months. However, it may be too early to tell how these former recipients fare in the longer term.

In Westchester, under Workfare, HR recipients were aggressively required to accept either a 20-hour-a-week job, training or drug treatment. Yet, since the effort began in 1990, fewer than 15 percent of recipients are reportedly engaged in work-related activities. Westchester has succeeded in keeping the number of HR recipients static, at a little below 6,000 people on HR. Westchester has not reduced the number of HR recipients as the State budget proposes statewide.[71]

Based on the experience elsewhere, it seems likely that many HR recipients cut from the program will not find jobs, will lose their apartments and will seek emergency shelter. For purposes of measuring the impact of the budget cuts, the most objective measure of the ultimate costs is the impact on emergency-shelter costs. These costs are credibly evaluated, for example, by the Community Food and Resource Center, which simply computes the savings of the time limit by multiplying the number of welfare-months not paid to HR recipients by the average monthly payment.

Currently, the City's single HR recipients receive Medicaid, a maximum basic monthly grant of $112, and a shelter allowance of $215 each month, for a total monthly cash grant of $327. The Governor's proposal cuts only the basic grant, not the shelter allowance. The proposal reduces the basic grant to $78 per month, leaving the total monthly HR grant of $293.

The City estimates that housing single adults in City emergency shelters costs about $50/night, or $18,250/year, with approximately 47% of the share paid by the City, that is $8,577 per year in City costs. Thus, if only 9,630 HR recipients removed by the time-limits from the rolls become City shelter residents, the budget savings evaporate. This group of former HR recipients is roughly 17 percent of the 56,313 recipients (described above) extrapolated from City estimates as being cut in FY 96, roughly one of 6 stricken recipients. The break-even figure for budget savings, 9,630 stricken recipients, is derived by dividing the projected $82.6 million HR 60-day-limit savings by the $8,577 annual City shelter cost-share.

This estimate might be conservative if some of those stricken need to be placed in housing for the mentally ill.

2. Limitation of Rent-Arrears Payments

Payments are to be limited to four months for AFDC, HR, and non-welfare recipients, and all rent-arrears payments to SSI recipients will be eliminated.

The current rent allotment for a family of three on AFDC is $286 a month, including utilities. Very few City apartments are available with rent that low, so most families on AFDC pay higher rent.

Until earlier this year, welfare and SSI would pay back rent up to $7,000 for low-income households threatened with eviction, since it is cheaper to keep the family in permanent housing than to pay for emergency housing. Recipients of rent-arrearage grants cannot receive such a grant more than once in a 12-month period. If the household is on public assistance, the grant will generally be repaid out of future welfare payments. If the recipient of the grant is working, he or she usually repays the grant.

The proposed State budget eliminates rent-arrears payments to SSI recipients. SSI recipients, it should be noted, are by definition, not receiving AFDC and have been certified as meeting Federal standards for being elderly, blind, or disabled. The proposed budget also limits to four months the amount of rent arrears that can be paid to AFDC, HR, and non-welfare households to prevent eviction. Effectively, as the explanation below notes, the new rules will probably eliminate the program for AFDC, HR and non-welfare families as well. Like the 90-day (or 60-day) limit described above, the impact of these cuts will be an increase in the number of homeless families and individuals. Indeed, the proposed City and State budgets increase funding for emergency shelters.

For AFDC, HR and non-welfare recipients, rent-arrearage money is paid from welfare funds. For people receiving SSI, the pool of money utilized is called Emergency Assistance for Adults (EAA) funds, which is 50 percent City tax-levy funded and 50 percent State funded.

HRA reports that it does not track the rent arrearages by number of households assisted. Nevertheless, our survey of nonprofit agencies assisting families threatened with eviction indicates that roughly two to three thousand families are assisted annually. These agencies estimate that the average household is assisted with six to seven months of back rent.

To qualify for grants, two conditions must be met: (a) the landlord agrees to stop eviction and (b) the household can demonstrate that rent arrearages will not happen in the future. The proposed State budget adds two new conditions: (c) the grant can only be for a maximum of four months' back rent and (d) is to be computed using as a ceiling on the grant the AFDC/HR "shelter allowance." As noted above, most people pay more in rent than their monthly shelter allowance. Currently, there is a $7,000 limit for back-rent grants. The result of the new rules will be that very few households will meet the combined conditions for the grants.

People familiar with the grant program and with Housing Court proceedings say that most landlords do not institute eviction proceedings until two or three months of back rent is owed. Given the slow speed with which Housing Court operates, the tenant is usually at least six months in arrears by the time an eviction order is given. Since the newly proposed grant will only pay four months' rent, in most cases it will not stop the eviction and thus will not be given to the family. Even families owing only four months or less are not likely to qualify for a grant, since their rent is probably higher than the monthly allowance. Thus, a grant based on the monthly allowance will not clear up the amount of back rent owed and not avoid eviction.

Rent arrears payments are so-called "one-shot grants." Recipients can receive no more than one grant each year. To prevent repeated use by individuals of the rent arrears program, HRA takes into consideration instances of recurring applications. In addition, HRA takes into consideration the applicants income and ability to pay. Pay stubs and letters from employers and family members are often required.

Even if the grant did clear up the back-rent problem, recipients are required to have a plan to avoid falling behind on their rent in the future. In the past, many of the recipients used supplementary rent support provided under the "Jiggetts" program described below to guarantee their being able to continue paying their rents after the grant. However, "Jiggetts" is also being eliminated.

To assess the cost/benefits of rent-arrearage payments, it must be remembered that the families and individuals who use the grants are at risk of being evicted. We can assume that without the grants they will be evicted. Even assuming a family uses the maximum grant of $7,000, and assuming the family does not repay any of the grant, the cost of the grant does not approach the cost of emergency housing described previously. The more families that are not assisted, the more families there will be utilizing the shelter system at the City's estimated rate of $27,375 per year per family or $18,250 per year per individual. In fact, people familiar with the rent-arrears grant say that the average grant is about $3,500 per family. Given this and given the City's share of these grants (25% X 3,500 = $875) and the City's share of emergency-shelter costs (33% X $27,375 = $9,096), if only one out of ten evicted families turns to the City Shelter for emergency housing, there will be no cost savings for eliminating the rent-arrears grant. That is, one family entering the shelter system equals approximately 10 families not receiving the rent arrears grant ($9,096 divided by $875 = 10.3)

3. Elimination of "Jiggetts" Payments

Currently, approximately 20,000 AFDC families in the City receive an average of $250 per month in rent supplement payments. An additional 2,000 families receive these so-called "Jiggetts" payments upstate. The rent supplement is paid pursuant to a class-action court case filed on behalf of all welfare recipients, called "Jiggetts vs. the State of New York" (i.e., "Jiggetts"). The plaintiff's contention is that the State Constitution requires the State to ensure habitable housing for all its residents. The trial occurred in 1991, remains suspended, and has never concluded.

As part of an interim consent decree under "Jiggetts," the State agreed to institute rent supplement payments for welfare families who qualify as part of the class of plaintiffs. The welfare family has to be certified by the State Department of Social Services ("DSS") as being under an eviction order in Housing Court. The City HRA and DSS are responsible for reviewing the Housing Court disposition. Once the family's status is certified, DSS formulates the size of the family's "Jiggetts" payments based upon the family's income and rent level, up to a DSS-approved "market rent." "Jiggetts" supplement payments are then combined with the family's monthly shelter allowance and mailed directly to the landlord. Funding for "Jiggetts" is split 25 percent City, 25 percent State, and 50 percent Federal.

Welfare advocates note that the prospect of receiving "Jiggetts" payments is unlikely to act as an incentive for tenants to withhold rent. There are, after all, many more evictions than "Jiggetts" grants. Tenants are far from certain to receive a subsidy if they are threatened with eviction.

The proposed State budget would eliminate "Jiggetts" payments. This provision would be implemented by means of language inserted into State law attesting to the adequacy of existing shelter allowances in meeting constitutional provisions on the supply of habitable shelter for New York State residents. As noted above, the AFDC shelter allowance for a family of three in the City would remain $286 per month.

Given the active eviction proceedings against families previous to their "Jiggetts" certification, the elimination of "Jiggetts" would result in some evictions. Given the concomitant decrease in AFDC basic grants and cuts imposed by proposed federal legislation, the amount of evictions could be considerable.

As already noted, the City's estimate for emergency City shelter costs is $75 per day for families and $50 per day for individuals. At $75 per day, it costs $27,375 annually to support a family in an emergency shelter. This cost is split almost evenly by the City, State and Federal governments. Thus, the City's cost is $8,486 per family per year. "Jiggetts" supplements cost roughly $3,000 annually per family, split 25 percent City, 25 percent State, and 50 percent Federal. Thus, the current 20,000 City "Jiggetts" families cost roughly $60 million annually in public funds, $15 million annually as the City's share. If nine percent of "Jiggetts" families, or one out of 11, are forced into emergency housing, this will cost the City the same amount as the City spends on "Jiggetts", totally neutralizing the savings obtained by eliminating "Jiggetts".

Further, eliminating "Jiggetts" will be a strain on the City's emergency housing system. In 1994, the City placed just 3,500 formerly homeless families in permanent housing through the EARP program (Emergency Assisted Rehousing Program). Any additional families entering the system will likely cause longer stays in the emergency shelters and a possible re-instating of court fines. The elimination of back-rent grants and "Jiggetts" payments would also add to the already heavy burden of the City's Housing Court.

Economic Impact of Cuts, by District

The economic impact of the welfare cuts is suggested in Table 16, which shows the ten City Council districts in the City with the greatest loss in income from the welfare budget cuts. The figures are the combined City, State, and Federal losses resulting from City and State cuts.

Table 16.
Economic Impact on City Council Districts of State Welfare Cuts (in $millions)

City Council District, BoroughNo. Persons on PAPlanned FY 96 Welfare, $milDirect Loss, $milEconomic Impact, $mil
15, Bx61,365$190$41$67
17, Bx60,899$188$40$66
34, Bk50,350$156$33$54
37, Bk49,366$153$33$54
7, Man49,302$152$33$54
14, Bx47,233$146$31$51
8, Man47,220$146$31$51
36, Bk43,377$134$29$48
9, Man40,532$125$27$44
42, Bk40,436$125$27$44
Sources: New York City Comptroller's Office, derived from: (1) Council District direct-loss projections from Liz Krueger, Community Food Resource Center, Testimony to the New York City Council, March 2, 1995, as revised May 4, 1995 (pp. 1-2) based on the NYC FY 1996 Executive Budget, p. 100E; (2) for Public Assistance (PA) numbers by Council District, NYC HRA, October 1994; and (3) Economic-Impact multiplier (1.64) from Federal RIMS II model, New York City industry code 70 (personal services); for State multiplier (1.96) see Bureau of Economic Analysis, U.S. Department of Commerce, Regional Multipliers, May 1992, p. 35.

The economic impact of welfare cuts in these 10 districts therefore amounts to between $44 and $67 million. This could amount to more than 20 percent of a $300 million economy, which is approximately the gross product of some of these poorer districts. If the cuts go through as planned, therefore, it is essential that training and job-creation programs be targeted to these districts.