From time to time, for a variety of reasons, some of the Commonwealth's citizens will find themselves in need of temporary financial assistance. The numbers will vary from year to year, and the length of need will vary from circumstance to circumstance, but each year a number of the state's residents need help. Not unexpectedly, the same holds true in all of the states in the nation. In response to the plight of the economically distressed, the federal government developed programs to aid in the transition from need to self-sufficiency, and offered their use to the states in return for their financial participation. The largest and most important of these programs, measured by numbers of dollars expended and numbers of people served, are Aid to Families with Dependent Children (AFDC), Job Opportunities and Basic Skills (JOBS), and Medical Assistance (Medicaid).

AFDC, a joint federal-state program, was created by the Social Security Act of 1935 and offers cash payments to families that meet certain requirements. AFDC in Kentucky is a two-part program, each part covering a different set of recipients. Single parent families, by far the largest recipient group, receive aid under the "basic" AFDC program; families with two parents are normally covered under Aid to Families with Dependent Children - Unemployed Parents (AFDC-UP), although two-parent families with one or both parents incapacitated or disabled may receive aid under the Basic-AFDC Program.

Deprivation of parental support for the children in the household is the primary test applied in determining eligibility for either of the AFDC programs. "Deprivation" may result from a number of factors, including the death, unemployment or disability of a parent, or abandonment by a parent. Other criteria are applied if initial eligibility is determined, the most important of which involves the family's income and resources.

A family's income must fall below two different benchmarks in order for the family to qualify for assistance. The benchmarks are termed the "Gross Income Limit" and the "Standard of Need." Both amounts are based upon family size.

Standard of need is a subsistence level of income calculated individually by each state. Families with incomes under the gross limit are allowed certain deductions to arrive at an income amount for comparison with the Standard of Need. The deductions are applied and the comparison is made through an "Applicant Eligibility Test."

If the family's income is within both amounts, the family receives a monthly cash payment. The amount of payment depends upon the family's "countable" income, but no matter what its income, the family will not receive more than a Maximum Benefit established by state law. In Kentucky, the Maximum Benefit has always been an amount lower than the Standard of Need, and is dictated, more often than not, by budget considerations, rather than a relationship with the Standard of Need or the federal poverty level. Table 5.1 illustrates the income, standard of need, and cash-payment limits for AFDC recipients in Kentucky.

Families eligible for AFDC under the income guidelines must also meet a resource test. Countable family resources must be less than $1,000, including money in savings or checking accounts, stocks and bonds, and real property, exclusive of the family's home. Furniture and other items necessary for everyday living are excluded, as well as the first $1,500 of value owned in a car.

Basic AFDC families may only have one of the parents living in the household, except for those cases where one or both parents is (are) considered incapacitated or disabled. Under AFDC-UP guidelines, the parents may remain together in the household, but must meet employment criteria not applicable to the Basic AFDC grant recipient.

At present, thirty percent of AFDC funding (Basic grants and UP) comes from Kentucky resources, while the remaining 70 percent is supplied by the federal government. In FY 1995, Kentucky's AFDC budget was $209.2 million, while total expenditures were approximately $188.3 million, some $21 million less than the amount allocated for that year. An official from the Kentucky Legal Services Program explained that this occurrence is part of a trend in which expenditures have been "under-budget" for the last three years. Figure 5.1 illustrates this trend. Table 5.2 shows the actual enacted AFDC budget and expenditure dollars for the last several years.

[Insert Figure 5.1 - AFDC Costs: Budget vs. Expenditures]

Department for Social Insurance records disclose that in FY 1995, there was an average of 76,436 cases dealt with per month, with an average of 193,848 persons served. Cash payments totaled approximately $188.2 million during the same year. In August 1995, there were an average of 72,956 AFDC cases with 180,921 recipients. Cash payments for the same month came to approximately $14.7 million.

A number of AFDC "realities" are illustrated in Figure 5.2. First, the population of AFDC-Basic recipients has declined over the last three years. Second, it is clear that most recipients are children. Third, the number of adults and the number of children reached their peak in 1992 with 63,634 of the former and 127,761 of the latter. These figures dropped to 56,412 and 120,852, respectively, in FY 1995. And perhaps the most important fact, is that the total population of AFDC-Basic recipients remained relatively stable between 1991 and 1995. This population reached a high of 191,395 in 1991 and a low of 177,264 in 1995.

[Insert Figure 5.2 - Changes in the Population of Adults and Children in the AFDC-Basic Program between FY 1991 and FY 1995]

Although it is commonly believed that welfare payments have grown substantially, there has been a decline of 10.8 percent in the average monthly welfare grant in Kentucky over the last five years. In July 1989, the average basic grant was $230.73, while in August 1995, the average was $199.95. Also, contrary to the stereotypical image of welfare families with large numbers of children, "the average number of recipient children in Kentucky AFDC households remained stable between 1987 and 1994, at 1.8 children per family." This figure is slightly smaller today. In FY 1995, the average number of recipient children was 1.7 per family.

Under the Family Support Act of 1988, states are required to provide education and training programs for those receiving AFDC. Kentucky requires its AFDC recipients to participate in the Job Opportunities and Basic Skills Program, which offers experiences in secondary and postsecondary education, literacy, job skills, and "life skills" including: parenting, decision-making, communication skills, (such as interviewing and résumé writing), wellness, and consumer issues. This program also provides case management and assistance with child care, transportation, and other support service needs such as eyeglasses, uniforms, school supplies, and work equipment. The ultimate goal is for participants to gain employment at a level at which they will be financially independent.

Over 13,000 people participated in all components of this program during FFY 1995, of which approximately 5,000 participated in the literacy, ABE, GED, and high school components. According to the JOBS Program Coordinator in the Department for Adult Education and Literacy, the latter components of this program are serving just over half of the target population in need of skills training. He also stated that he did not know the number of JOBS participants who actually gained employment upon completing the program since data collection of this sort is difficult due to migration and failure of participants to report their employment status.

AFDC recipients must participate in JOBS unless they meet certain federal exemption criteria. One such criterion involves the age of the child; mothers in poverty who have a child under the age of 3 are not required to participate, except teen parents, whose participation is mandatory regardless of their child's age. Those who participate in JOBS receive expense allowances for child care and transportation. A household will receive, on average, $243 per month for child care and $52 a month ($3 per program day) for transportation.

When an AFDC recipient finds a job, benefits are gradually withdrawn from the recipient under a "ratable reduction" formula. This formula allows the Cabinet for Human Resources' Department for Social Insurance to calculate benefits based on a ratio of the difference between a household's countable income and the designated standard of need for the household's size. Specifically, public assistance benefits are calculated by multiplying this difference by .55. Even if this calculation results in an amount larger than the Maximum Benefit level for a family, the family's cash payment can never exceed this limit.

Families which no longer qualify for AFDC, are automatically considered for medical assistance for up to one year under the Transitional Medical Assistance Program. As stated in the previous chapter, families may also receive some cash assistance for child care expenses for up to one year if they meet certain income criteria under the Transitional Child Care Program.

Table 5.3 details the public assistance benefits given to a family of three. Specifically, it illustrates how these benefits change when members of the household participate in the JOBS Program, and when they have secured employment. For example, a family of three (in which the parent is not employed) is eligible for $228 in monthly cash payments, $275 in monthly food stamp allotments, and Medicaid coverage. Assuming that the parent is not exempt from participation in the JOBS Program, his or her family would receive a monthly child care allowance averaging $243 and an average monthly transportation allowance of $52. Further, the same family might be eligible for a housing subsidy.

As indicated by the table, benefit levels change for the same family when the parent starts to work full-time. For example, if the parent works 40 hours a week at an hourly wage of $5.50, his or her family is eligible for $149 in cash payments, $160 in food stamps, and Medicaid coverage. A deduction from income is made for child care costs, and beginning in December 1995, direct child care payments will be made to child care providers on behalf of eligible households. Transportation costs are included in a work expense standard deduction. After the first four months of the parent's employment, the caseworker responsible for the family will apply the ratable-reduction formula to the family's income and assets. Gradually, benefits are withdrawn, including Medicaid coverage. Once AFDC payments have been discontinued, the family is eligible to receive all forthcoming child support payments.

[Insert Table 5.3 - Welfare to Work in Kentucky]

Another joint federal-state program, Medicaid was created under an amendment to the Social Security Act of 1935. It pays for certain medical services rendered to eligible individuals and families by health care providers who have entered into an agreement with the CHR's Department for Medicaid Services. For every 30 cents Kentucky allocates to this program, the federal government donates 70 cents. The Medicaid budget for SFY 1995 was approximately $2 billion, of which almost $1.5 billion came from the federal government. Medicaid expenditures for the same year totaled approximately $1.97 billion (excluding disproportionate share payments).

Although the Department for Medicaid Services does not calculate the annual number of Medicaid recipients, monthly summaries are available. Officials in this department believe that figures from January 1995 (the most recent month for which data are available) are fairly representative of the true monthly average of persons served by this program each fiscal year. These figures indicate that 537,499 persons participated. There were roughly equal proportions of adults (51.1 percent) and children (48.9 percent). Total expenditures (excluding disproportionate share payments) in January 1995 were approximately $153 million.

Not surprisingly, there are a myriad of eligibility, income, and resource requirements associated with the Medicaid Program. Generally, pregnant women, dependent children under 18, elderly persons (65 and older), the blind, and those who have a total and permanent disability may qualify if income and resource tests based on family size are met. Those who receive AFDC, Supplemental Security Income (SSI) or State Supplementation are eligible for Medicaid benefits. Examples of "resources" for the purpose of the Medicaid Program include checking and savings accounts, cash on hand,

and stocks and bonds. Table 5.4 provides a breakdown of the income and resource limits for this program.

The Commission identified several barriers to self-sufficiency in Kentucky's AFDC, JOBS and Medicaid programs. First is a lack of communication and miscommunication between social workers and clients. Many public assistance recipients explained that they were not fully informed of their options, were given confusing instructions, or were not told of any options at all. A former AFDC recipient said, "They (caseworkers) don't tell you anything about a transportation check. You have to ask about everything. If you don't ask, you won't get it." Another citizen, a Whitesburg minister, echoed this sentiment by stating, "Sometimes, I think that people are not getting what they are supposed to get because they fail to know what they can get."

At their current levels, three components of the AFDC program formula pose significant problems in the attainment of financial independence: the standard of need, maximum monthly payment, and resource limits. Of those who testified before the Commission, almost all suggested raising the AFDC standard of need and maximum benefit limits. An official from the Northern Kentucky Legal Aid Society explained that the current standard of need is sufficient to raise families to 50 percent of the poverty level and that this standard must be raised in order to help families overcome poverty. He asked, "Why not set the standard of need at the poverty level? Let people work and keep their grant until they get out of poverty instead of (losing their grant) when they get to 50 percent of poverty."

The official from the Kentucky Legal Services Program also recommended raising the standard of need and maximum monthly benefits for AFDC recipients. He explained that by raising the former, recipients could keep a greater share of their AFDC payments (under the ratable-reduction formula) and keep their Medicaid coverage while working. This official made the following suggestions:

(1) Update the standard of need: (This standard) is the critical income guideline which governs what families can earn while keeping a reduced portion of their grant and their Medicaid card. (2) Update AFDC benefits themselves: Families cannot participate in work, school or community life if basic needs go unmet. Kentucky's maximum AFDC grant of $228 for a family of three amounts to less than 22 percent of the federal poverty level. It has gone unchanged since 1989 and ranks 44th in the nation. It's time to bring it up to date -- and provide a better base on which to add earnings.

Figure 5.3 illustrates Kentucky's standard of need and maximum benefit levels in the AFDC Program as a percent of the federal poverty line. When using federal poverty thresholds as a baseline, it is clear that the standard of need and monthly benefit levels have declined since 1989, the year in which Kentucky implemented the ratable-reduction system. For instance, in 1989 the standard of need was approximately 63 percent of poverty, while the maximum monthly benefit was approximately 27 percent of poverty. By 1995, these figures had fallen to 50 percent and 22 percent, respectively. Clearly, Kentucky's AFDC benefits are not sufficient to raise recipients to the federal poverty line. In fact, they are only able to bring a family to less than one-quarter of this threshold.

[Insert Figure 5.3 - Standard of Need and Maximum Benefit Levels of Kentucky's AFDC Program as a Percent of the Federal Poverty Line]

While the implementation of the Commission's recommendation would allow AFDC recipients to retain a greater portion of their payments as their incomes increased, an important goal, the main thrust of the recommendation is directed toward extending medical coverage for the poor.

Currently, AFDC recipients lose primary medical coverage when AFDC cash payments are discontinued. The latter may occur four months after the recipient obtains a 40- hour per week, $5.50 or more per hour job. Modification of the Ratable-Reduction ratio will allow AFDC recipients to earn more for a longer period without termination of benefits, thus increasing the likelihood of retaining AFDC and MA eligibility until a greater level of self-sufficiency is achieved. Medical coverage is continued for one year for most former AFDC recipients under a Transitional Medical Assistance Program, and pregnant women and children born after September 30, 1983 (whose family income is below poverty) continue to be Medicaid eligible following expiration of transitional medical assistance benefits.

The initial loss of medical benefits is a function of income, the final loss of medical benefits is a function of time. The existence of the transitional program is testimony to the fact that the income level at which primary medical coverage is discontinued is insufficient to enable former AFDC recipients to afford medical coverage for either themselves or their children, a fact testified to by many current and former recipients and welfare practitioners. And the assumption that, somehow, the former recipients will increase their income within the short span of one year to a level at which they can afford to purchase medical coverage is illogical at best. While the assumption that medical coverage is affordable even at the poverty threshold is somewhat tenuous, at least the expectation is reasonable.

The potential loss of medical coverage is a major disincentive to work, a fact testified to by nearly all the AFDC recipients interviewed by the Commission. Extending coverage until a realistic level of income is reached will remove the disincentive, reduce the state's payout of other welfare benefits as more recipients take jobs, and cover that segment of the population most in need of health care until they can afford to cover themselves.

This recommendation further addresses the issue of extending medical benefits for a longer period of time after the client begins employment.

As a result of soon to be imposed federal limits on the amount of time public assistance can be granted, sufficient moneys could be available to increase payment or support services, or both, in order to enhance the transitional value of the assistance. An analysis should be undertaken to project the cost-saving impact of increased state flexibility, shorter benefit terms, and other factors to raise benefits for the likely diminishing client base. Also, to the extent that such savings would permit cost-of-living adjustments, they should be considered.

Under current federal AFDC regulations, in the case of the self-employed, countable income is determined by subtracting certain business expenses from gross receipts. However, the deductible expenses do not include such things as equipment, payments on the principle of most loans, and personal transportation.

If an individual wishes to reinvest receipts by buying additional business equipment or inventory to expand the business or replenish stock, those receipts are still included in gross income. As a result, if there is any positive cash flow from the business, the family risks reduction or loss of its AFDC grant, even though the business may not yet be independently viable.

JOBS program participants required to commute significant distances to obtain job training need reliable transportation. AFDC recipients starting a business need reliable transportation. AFDC recipients taking a job not accessible by public transportation, need reliable transportation. Automobiles with a value of $1,500 or less are seldom able to provide the reliability needed for commuting or business service. The Commission suggests raising the excluded value from $1,500 of equity value to $6,000 of fair market value.

Shortcomings in Kentucky's JOBS Program serve as another barrier to self-sufficiency. The Commission discovered two problems in particular. The first concerns the federal exemption criterion that non-teenage mothers with children under the age of 3 are not required to participate in the program. Commission members considered this exemption problematic since these mothers are often in the greatest need of information on how to "parent" children -- instruction offered in the JOBS Program.

The Commission is aware that implementation of this recommendation would require a federal waiver. However, the Commission believes that the need for life-skill training is so crucial for this segment of the AFDC population, as to make the effort worthwhile.

The other shortcoming of the JOBS Program is the amount of travel allowance given to participants. As stated earlier, those in the program receive an average of $52 per month for transportation costs. Citizens from rural areas, eastern Kentucky in particular, testified that the transportation allowance was not sufficient to cover their cost of travel. A Whitesburg resident described one of the practical difficulties that she experienced while participating in the JOBS Program. She stated:

I work 80 hours a month and they give us $3 a day for gas. I live about 10 miles (from my job location). By the time I put oil in my old truck and buy me a couple dollars worth of gas, I'll run out of gas before I get back home .... You have to have insurance on these vehicles or you can't get out on the road, so they are giving us $3 a day and we're supposed to furnish the vehicle insurance and gas and all of that. We just can't do it.

A field services supervisor in Whitesburg's Department of Social Insurance mentioned that transportation is often a barrier for rural residents who must sometimes drive longer distances to receive education and job training. She explained that one of her clients (a JOBS participant) desired to take classes at Pikeville Community College, but could not attend due to lack of transportation. When asked if the transportation allowance provided by the JOBS Program was sufficient, the supervisor responded, "Well, I don't know that you could go to Pikeville on $3 a day."

The Commission observed other barriers to self sufficiency, including the absence of a coordinated effort to market adult education programs, literacy programs, and JTPA (Job Training Partnership Act) services to the impoverished, and the need for greater attention to the needs of JOBS program participants who are chemically dependent. Although it is true that AFDC recipients are required to participate in the JOBS program (unless they meet federal exemption criteria), the Commission found that the poor who receive some sort of public assistance other than AFDC may receive adult basic education services (ABE), one component of the JOBS Program, and could possibly be eligible for JTPA services. In other words, these individuals may receive the basic instruction offered by the program, but cannot receive the corresponding child care and transportation allowances. Another group, non-custodial parents under court order to pay child support, stands to benefit from the training available through the JTPA. In neither the case of non-AFDC public assistance recipients, or in the case of ordered payers of child support, did the Commission identify any special effort to make these individuals aware of their potential eligibility for JTPA services.

The intended outcome of this recommendation is the recruitment of persons who would benefit from the training sessions available through the JTPA. Identification of potential participants from the ranks of non-AFDC public assistance recipients and certain payers of child support would be possible through records maintained by the Cabinet for Human Resources.

The Commission became aware through testimony at its public hearings of the significant role that substance abuse plays in poverty. The chemically dependent are generally unable to "cure" themselves, and require a formal program to achieve sobriety.

At both its Louisville and Covington public hearings, the Commission heard testimony about the glowing success of the treatment programs offered by private, non-profit groups operating in those areas.

A former substance abuser testified to the following:

An associate executive director of Transitions, Inc., told the Commission the following:

The final barrier to self-sufficiency encountered by public assistance recipients, to be discussed here, is the time limit for transitional child care. When AFDC cash payments are discontinued, former recipients become eligible for child care assistance for a period of up to one year. As in the case of time limited medical benefits, extended child care benefits generally terminate at the end of one year unless the recipient is eligible under the income guidelines of the At-Risk Child Care Program. While not as significant as medical care in a recipient's decision to take a job or ability to stay on the job -- options other than commercial day care are often available -- the loss of child care benefits does play an important role in the whole employment scheme.

To stretch the dollars available for long-term child care, reducing benefits as income approaches the poverty threshold would be an acceptable alternative. Avoidance of loss of benefits when time, not income, is the determining factor, is the point of Recommendation 6.9.

In September 1995, both houses of Congress approved plans that would dramatically change the country's welfare system. Under legislation approved by the Senate, there would no longer be a guarantee of assistance to poor Americans, and plans approved by the House and Senate would abolish the AFDC Program, converting it to a "block grant" to the states. And a five-year, lifetime limit would be placed on cash payments to recipients. Also, as of late September, there was a proposal in the House to abolish the Medicaid Program and replace it with a block grant under the Medigrant Program.

It is not clear whether welfare reform legislation, once it is approved by Congress and authorized by the President, will include federal matching or maintenance-of-effort requirements. Also, it is not known exactly how much flexibility will be given to states in terms of administering block grants, or the level of funding relative to current categorical outlays. Nevertheless, the Commission believes that both maintenance of effort and the allocation of block grants to be issues of such serious consequences that the development of policies encompassing each should begin immediately.

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