Gauging Welfare Demand

February 21, 1991

Could the state have avoided the current $40 million cost overrun in its Aid to Families with Dependant Children program? A study from the University of Baltimore's Center for Business and Economic Studies might serve as a guidepost for realistic AFDC estimates in the future.

The report was commissioned by the Department of Human Resources to shed light on last year's puzzling surge in welfare applicants. What it found was a strong correlation between economic indicators and rising welfare rolls. It also debunks some of the myths about who gets public assistance and why. The typical welfare applicant last year was a low-salaried worker with few benefits who was laid off in the prior six months. This quashes the theory that people who get welfare are jobless historically and by choice. It also forms the basis for a new approach to forecasting demand for AFDC funds using tax revenue, demographic and unemployment data.

Until now, trend forecasts were used to predict AFDC needs. That approach doesn't work if there is an unexpected shift in the economy. That is what happened between July 1989 and December 1990, as the number of AFDC cases surged more than 9,000. This added close to $40 million to the state's expenses. And because AFDC is an entitlement program bankrolled jointly by federal and state governments, the bill must be paid.

Compounding the problem is a weakening in the unemployment insurance safety net: Fewer laid-off workers qualify for smaller benefit checks. Yet even as the AFDC caseload has grown, the state's mounting deficit has forced a cutback in caseworkers. Error rates are on the rise as fewer staffers struggle to accommodate the surge in new applicants.

DHR analysts suggest the problem is likely to get worse before it gets better. Already, the agency reckons it will need an additional $45 million in fiscal 1992 to cover projected growth in caseloads.

The good news is that the state should be a lot better prepared to make more accurate AFDC cost projections. Legislators can blame the current funding squeeze on unexpected events. But next time around there will be no excuses.

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