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Is Federalism Really the Answer to Poverty and Inequality in America?

Republicans want to give states more control over education, health care, welfare, and, well, everything.
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People stand in line to receive fresh bread and produce at the Community Food Bank of New Jersey on August 28, 2015, in Egg Harbor, New Jersey. (Photo: John Moore/Getty Images)

People stand in line to receive fresh bread and produce at the Community Food Bank of New Jersey on August 28, 2015, in Egg Harbor, New Jersey. (Photo: John Moore/Getty Images)

Last week, six of the Republican presidential hopefuls gathered in Columbia, South Carolina, for a forum on poverty in America. Moderated by House Speaker Paul Ryan and South Carolina Senator Tim Scott, the forum was meant to provide an opportunity for the candidates to present their policies in a less combative and time-restricted environment than the debates, and to convince an increasingly disenchanted electorate that conservatives care just as much about poverty and inequality as their liberal opponents do.

In a series of panels, Ryan and Scott quizzed the candidates about the government's role in combating poverty, failing schools, and inequality. The candidates' plans differed along some dimensions, but their devotion to the tenets of federalism—a smaller federal government and the devolution of power to state and local governments—was unanimous. Local governments, the candidates argued, are able to design and administer social programs more flexibly and effectively, and at a lower cost, than a bloated, disconnected federal bureaucracy, and should thus be given more responsibility for everything from health care to education.

It's not hard to see the appeal of federalism. The federal government isn't exactly known for effective and cost-efficient program administration, and it's not a stretch to imagine local governments might know how to battle poverty in their own backyards better than faceless bureaucrats thousands of miles away. In practice, however, this notion of "returning power to the states" usually takes the form of federal block grants—fixed-amount grants that come with few strings attached and require minimal oversight—and the evidence on these is decidedly mixed.

If the welfare reforms of 1996 have taught us anything, it's that block grants are not the simple panacea conservatives would like them to be.

Liberals argue that block grants are often poorly administered by inexperienced local governments, are subject to less stringent oversight, and are vulnerable to diversion to politically valuable constituents—the last of which can result in substantial service cuts to affected programs. Conservatives insist the grants are the best way to fight poverty, and they feature prominently in Republican policy proposals—Paul Ryan suggested a pilot program of "Opportunity Grants" back in 2014, while Marco Rubio's poverty plan relies on "Flex Funds," and Jeb Bush's recently unveiled welfare plan calls for eliminating the current welfare and food stamp programs entirely in favor of "Right to Rise" block grants.

Many conservatives cite the 1996 welfare reforms as an example of a successful block grant program that returned power to local government. The reforms replaced the federally administered Aid for Families With Dependent Children (AFDC) program with the block grant-funded, state-administered Temporary Assistance to Needy Families program. In addition to new work requirements and caps on the amount of time families could receive benefits, the reforms granted states a great deal of flexibility in how they administered the program. In the years immediately after 1996, the reforms were widely lauded as a success by liberals and conservatives alike. Caseloads declined dramatically and labor force supply increased—for a time, it actually looked like the program was doing what it was supposed to: providing a helping hand to needy families, while also preparing and encouraging welfare recipients to get back to work.

The reforms, however, fell apart when the Great Recession hit. In a summary paper released last year by the National Bureau of Economic Research, James Ziliak highlighted both the varying effects across states and the sharp decline in caseloads in many states, even during a period of economic devastation.

"Oregon and Maine, for example, had an increase in caseloads of 120 percent or more, while Illinois and Texas had declines of over 70 percent," Ziliak wrote. "To be certain, what is most notable ... is the vast majority of states had declines in cash assistance during a very weak economic period, in sharp contrast to the huge increase in food stamp usage."

These declines, Ziliak concluded, produced dire effects for families at the bottom of the income distribution: "The limited evidence to date suggests that TANF did not respond to the Great Recession, and this lack of business-cycle response contributed to the growth of deep poverty."

TANF's block grant funding model certainly isn't solely to blame for the caseload declines, but Ziliak's research highlights two key limitations of traditional block grant-funded programs: They can result in significant disparities between states, and they're funded at a fixed amount that doesn't automatically increase during times of economic distress, meaning states often can't provide additional assistance when it's most needed. In fact, research indicates that, during the Great Recession, many cash-strapped states actually diverted portions of their TANF grants to alternate non-cash-assistance programs.

According to an analysis released in October by the liberal Center on Budget and Policy Priorities, states spent only 26 percent of their TANF funds on cash welfare grants; an additional 24 percent went to child care and "work-related activities and supports." A whopping 34 percent of TANF funds went to "other areas," a nebulous category that can include everything from early childhood education to human services programs like foster care. "TANF's combination of broadly defined purposes and limited accountability for much of its spending has enabled states to divert funds from supporting the poorest families and use them instead to help fill state budget holes," the report's authors wrote.

It may well be that local governments are better at fighting poverty than their federal counterparts, and it's surely possible to design a more effective block grant funding system—stricter controls on spending could be applied, and social safety net block grant funds, for example, could be tied to unemployment rates (the latter of which Pamela Loprest suggested to Pacific Standard in 2011). But if the welfare reforms of 1996 have taught us anything, it's that block grants are not the simple panacea conservatives would like them to be.

"I know that giving states more flexibility will open the door for transformative ideas to eliminate poverty and increase opportunity," Jeb Bush wrote in the text accompanying his welfare plan. It's unlikely that the thousands of desperately poor families who live in states that chose to dramatically reduce their spending on cash assistance during the Great Recession share Bush's optimism.