Lawmakers are looking to solve a glitch in the welfare system that can discourage low-income Vermonters from taking good-paying jobs. But addressing the problem will cost money. And advocates for needy residents are concerned about the funding mechanism.
For some welfare recipients, getting a promotion can be costly. That's due to an odd phenomenon known as the "benefits cliff." And it happens when the additional income from a pay raise isn’t enough to offset the reductions in state assistance that could come as a result.
"So for many people on Reach Up (public assistance) today, when they take a job, they're better off. But unfortunately for some, when they get a job that pays more - $15, $16, $17 an hour - they start to lose money. That's not good policy." -Dave Yacavone, commissioner of the Department of Children and Families
The problem is that the precipice begins to near just as low-income Vermonters start climbing the professional ladder. Dave Yacovone, commissioner of the Department of Children and Families, says this phenomenon creates a perverse disincentive in a program designed to lift people out of poverty.
“So for many people on Reach Up today, when they take a job, they’re better off. But unfortunately for some, when they get a job that pays more – $15, $16, $17 an hour – they start to lose money,” Yacovone says. “That’s not good policy.”
Yacovone’s department has run numbers illustrating the dilemma. A single mother of an infant and preschooler who works fulltime at $12.73 an hour would have a net annual household income of $47,232. That same woman making $17 an hour would see her income drop to $44,628.
The calculations include things like wages, welfare benefits, fuel assistance, earned income tax credit, childcare assistance and food stamps. And as income ratchets up, the value of the benefits from those other programs goes down.
Yacovone says the research is mixed on whether or not the reduction of welfare benefits affects the work habits of recipients. But lawmakers this year have heard from welfare beneficiaries who had to weigh the benefits of professional advancement against its impact on their overall household income.
“And I think that based on testimony that we’ve heard in here of what actual recipients go through, a lot of them are forced to make these difficult financial decisions that often times result in unfortunate not taking rises, not taking extra hours, not taking a job that they were offered,” says Rep. Matt Trieber, D-Bellows Falls.
Trieber sits on the House Committee on Human Services, and on Wednesday his committee gave nearly unanimous approval to legislation that turns the cliff into a gentler slope.
The legislation changes the system in two ways. First, it increases the amount of money people can earn before their benefit begins to diminish. Second, it increases the value of assets people can have and still be able to be on welfare. The asset test would move from $2,000 to $5,000.
Advocates for low-income Vermonters have been working for years to soften the slope of the benefits cliff. Christopher Curtis, a staff attorney for Vermont Legal Aid, says the House proposal is a step in the right direction.
“So this is a really encouraging start to send a message to low-income working families that it’s okay to save and it’s going to make work pay – that the more you earn the more you can keep before your grant is reduced,” Curtis says.
But the changes would add about $1.2 million in costs to the Reach Up program. And Curtis is concerned about where lawmakers plan to find the money. The House bill raises the funds by instituting an across-the-board reduction in welfare benefits for all of the approximately 4,700 families on the program. Spread out over such a large number, the cut isn’t huge. But Curtis says it’s real money for poor families.
“Fifteen or $20 a month may not sound like much to some people , but for many low income families, that may be diapers and milk for the week,” Curtis says.
Trieber says he doesn’t view the reduction in benefits as a cut to the program, but rather a reallocation designed to make it work better. Trieber says the increased income is available to all Reach Up recipients, and that it’s possible beneficiaries could undo the negative financial impacts of the legislation by working as little as two or three hours a month. Lawmakers are still awaiting a detailed financial analysis of the proposal from the Legislature’s Joint Fiscal Office.
The bill is expected to make it through the House, after which it will go to the Senate. Curtis says advocates will work to find other ways to pay for the proposal as it moves through the legislative process.
