[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]


 
                         WELFARE AND WORK DATA

=======================================================================

                                HEARING

                               before the

                    SUBCOMMITTEE ON HUMAN RESOURCES

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 14, 2005

                               __________

                           Serial No. 109-25

                               __________

         Printed for the use of the Committee on Ways and Means

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                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

E. CLAY SHAW, JR., Florida           CHARLES B. RANGEL, New York
NANCY L. JOHNSON, Connecticut        FORTNEY PETE STARK, California
WALLY HERGER, California             SANDER M. LEVIN, Michigan
JIM MCCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan                  JIM MCDERMOTT, Washington
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. MCNULTY, New York
PHIL ENGLISH, Pennsylvania           WILLIAM J. JEFFERSON, Louisiana
J.D. HAYWORTH, Arizona               JOHN S. TANNER, Tennessee
JERRY WELLER, Illinois               XAVIER BECERRA, California
KENNY C. HULSHOF, Missouri           LLOYD DOGGETT, Texas
RON LEWIS, Kentucky                  EARL POMEROY, North Dakota
MARK FOLEY, Florida                  STEPHANIE TUBBS JONES, Ohio
KEVIN BRADY, Texas                   MIKE THOMPSON, California
THOMAS M. REYNOLDS, New York         JOHN B. LARSON, Connecticut
PAUL RYAN, Wisconsin                 RAHM EMANUEL, Illinois
ERIC CANTOR, Virginia
JOHN LINDER, Georgia
BOB BEAUPREZ, Colorado
MELISSA A. HART, Pennsylvania
CHRIS CHOCOLA, Indiana
DEVIN NUNES, California

                    Allison H. Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 ______

                    SUBCOMMITTEE ON HUMAN RESOURCES

                   WALLY HERGER, California, Chairman

NANCY L. JOHNSON, Connecticut        JIM MCDERMOTT, Washington
BOB BEAUPREZ, Colorado               BENJAMIN L. CARDIN, Maryland
MELISSA A. HART, Pennsylvania        FORTNEY PETE STARK, California
JIM MCCRERY, Louisiana               XAVIER BECERRA, California
DAVE CAMP, Michigan                  RAHM EMANUEL, Illinois
PHIL ENGLISH, Pennsylvania
DEVIN NUNES, California

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
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unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
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                            C O N T E N T S

                               __________

                                                                   Page

Advisory of July 7, 2005, announcing the hearing.................     2

                                WITNESS

U.S. Department of Health and Human Services, Hon. Wade F. Horn, 
  Ph.D., Assistant Secretary for Children and Families...........     8

                       SUBMISSION FOR THE RECORD

Community Voices Heard, Sandra Youdelman, New York, NY, letter...    22


                         WELFARE AND WORK DATA

                              ----------                              


                        THURSDAY, JULY 14, 2005

             U.S. House of Representatives,
                       Committee on Ways and Means,
                           Subcommittee on Human Resources,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 10:02 a.m., in 
room B-318, Rayburn House Office Building, Hon. Wally Herger 
(Chairman of the Subcommittee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                    SUBCOMMITTEE ON HUMAN RESOURCES

                                                CONTACT: (202) 225-1025
FOR IMMEDIATE RELEASE
July 14, 2005
No. HR-5

                      Herger Announces Hearing on

                         Welfare and Work Data

    Congressman Wally Herger (R-CA), Chairman, Subcommittee on Human 
Resources of the Committee on Ways and Means, today announced that the 
Subcommittee will hold a hearing on welfare and work data. The hearing 
will take place on Thursday, July 14, 2005, in room B-318 Rayburn House 
Office Building, beginning at 10:00 a.m.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from an invited witness only. The 
witness will be an official from the U.S. Department of Health and 
Human Services (HHS). However, any individual or organization not 
scheduled for an oral appearance may submit a written statement for 
consideration by the Subcommittee for inclusion in the printed record 
of the hearing.
      

BACKGROUND:

      
    The 1996 welfare reform law (P.L. 104-193) made significant changes 
to the Federal-State welfare system designed to aid low-income American 
families. The law repealed the individual entitlement to cash welfare 
benefits and created the Temporary Assistance for Needy Families (TANF) 
block grant program. The TANF program provides fixed funding to States 
to operate programs that provide time-limited aid to recipients while 
encouraging work and self-sufficiency. In large part due to the TANF 
program's emphasis on promoting work and self-sufficiency, the number 
of families receiving cash assistance has fallen by more than 60 
percent since 1996.
      
    The 1996 law also included provisions allowing State TANF programs 
access to certain information on newly hired employees. Under the 1996 
law, employers are required to report new hire data within 20 days of 
hiring to a State Directory of New Hires (SDNH). This information is 
then forwarded by all States and combined with Federal new hire 
information to comprise the National Directory of New Hires (NDNH). 
States are authorized to use information in their SDNH and the NDNH to 
verify eligibility for certain programs, including TANF.
      
    During the past several months, HHS has been involved in pilot 
tests with the District of Columbia and certain States to match welfare 
caseload data with information in the NDNH to better understand how 
many welfare recipients are working. At the hearing, HHS will discuss 
initial findings from these pilot tests, which suggest that work rates 
among welfare recipients are underreported.
      
    In announcing the hearing, Chairman Herger stated, ``One of the 
goals of welfare reform is to encourage and support more low-income 
parents in work. While welfare reform increased the share of working 
recipients, current data suggest a majority of parents on welfare still 
are not working,'' stated Chairman Herger. ``Using data from the NDNH, 
HHS has produced material that suggests there are thousands more 
current and former welfare recipients working than States have been 
reporting. This new information has important implications for the next 
stage of welfare reform, and suggests that policies that expect and 
support more work among parents on welfare make sense.''
      

FOCUS OF THE HEARING:

      
    The hearing will review a HHS analysis of welfare and work data.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
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FORMATTING REQUIREMENTS:

      
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noted above.

                                 

    Chairman HERGER. Good morning, and welcome to today's 
hearing, ``Providing New Insights on Welfare and Work Data.'' 
This hearing involves a central focus of the 1996 Welfare 
Reform law (P.L. 104-93). The 1996 law expected parents on 
welfare to work or engage in other activities in exchange for 
welfare checks. Rising to this challenge, literally millions of 
parents and families have gone to work and moved off welfare. 
Many parents--about 1.4 million--remain on welfare. We will 
learn today that significantly more of those parents are 
working than was previously reported.
    As Assistant Secretary Wade Horn of the U.S. Department of 
Health and Human Services (HHS) will report, in a sample of ten 
States, 34 percent of welfare recipients appear to be working. 
That compares with only about 25 percent of recipients working 
using the data sources relied on today. That means that about 
125,000 more parents on welfare are working than we knew about 
before. An earlier match run by HHS and District of Columbia 
officials found the average hourly wage for parents on welfare 
who were working in D.C. was $9 an hour. At least in D.C.--and 
hopefully, elsewhere--those previously unknown workers are 
earning well above the minimum wage. All of that is welcome 
news.
    The specific issue before us is the use of what is called 
the National Directory of New Hires (NDNH). This database was 
first created in the 1996 welfare law to help collect more 
child support. It has since been tapped for other uses, 
including to ensure that unemployment benefits are not paid to 
people who have gone back to work. States are authorized to use 
this national new hire information in operating their welfare 
programs, but none do. Many States use information in their 
State directories of new hires to determine whether welfare 
recipients are working. The additional information in the 
national directory, including about workers hired by multi-
State employers and the Federal Government, adds important 
pieces to the welfare-to-work puzzle.
    As Secretary Horn will explain, States support HHS's 
efforts to help them tap into the NDNH, as they should. This is 
a simple and available tool that will help States improve 
TANF's performance in encouraging and supporting work. For 
example, States can use the new hire information to help those 
who just got a job keep it, or get a better one. Or States 
could more effectively target child care and job training 
services to parents on welfare, starting with the increased 
numbers who are working. As the District of Columbia has shown, 
they can achieve savings by ensuring only those eligible for 
welfare remain on the rolls.
    What are the policymakers to make of this, especially as we 
consider the next steps in welfare reform? I would argue that 
it backs up our efforts to expect and support more parents in 
work. All sides--the Administration, House and Senate, 
Republicans and Democrats--have proposed raising the target 
work rates for welfare recipients. This new data confirms that 
States can satisfy higher work rates, since there already is 
more work going on than we previously knew.
    While that is encouraging news, more must be done. I am 
very interested in hearing Secretary Horn's testimony and 
discussing its implications. This hearing, like other 
reauthorization legislation, should help States increase the 
share of welfare recipients who are working and moving up the 
career ladder. I look forward to the testimony and our 
discussion this morning. Without objection, each Member will 
have the opportunity to submit a written statement and have it 
included in the record at this point. Mr. McDermott, would you 
care to make a statement?
    [The opening statement of Chairman Herger follows:]
   Opening Statement of The Honorable Wally Herger, Chairman, and a 
        Representative in Congress from the State of California
    Good morning and welcome to today's hearing providing new insights 
on welfare and work data.
    This hearing involves a central focus of the 1996 welfare reform 
law--work. The 1996 law expected parents on welfare to work or engage 
in other activities in exchange for welfare checks. Rising to this 
challenge, literally millions of parents and families have gone to work 
and moved off welfare. But many parents--about 1.4 million--remain on 
welfare.
    We will learn today that significantly more of those parents are 
working than was previously reported. As Assistant Secretary Wade Horn 
of the Department of Health and Human Services will report, in a sample 
of 10 states 34 percent of welfare recipients appear to be working. 
That compares with only about 25 percent of recipients working using 
the data sources relied on today. That means that about 125,000 more 
parents on welfare are working than we knew about before.
    An earlier match run by HHS and District of Columbia officials 
found the average hourly wage for parents on welfare who were working 
in DC was 9 dollars an hour. So at least in DC and hopefully elsewhere 
those previously unknown workers are earning well above the minimum 
wage. All of that is welcome news.
    The specific issue before us is the use of what is called the 
National Directory of New Hires. This database was first created in the 
1996 welfare law to help collect more child support. It has since been 
tapped for other uses, including to ensure that unemployment benefits 
are not paid to people who have gone back to work. States are 
authorized to use this national new hire information in operating their 
welfare programs, but none do.
    Many States use information in their State directories of new hires 
to determine whether welfare recipients are working. But the additional 
information in the national directory--including about workers hired by 
multi-state employers and the federal government--adds important pieces 
to the welfare-to-work puzzle.
    As Secretary Horn will explain, States support HHS's efforts to 
help them tap into the National Directory of New Hires, as they should. 
This is a simple and available tool that will help States improve 
TANF's performance in encouraging and supporting work. For example, 
States can use the new hire information to help those who just got a 
job keep it, or get a better one. Or, states could more effectively 
target child care and job training services to parents on welfare, 
starting with the increased numbers who are working. And as the 
District of Columbia has shown, they can achieve savings by ensuring 
only those eligible for welfare remain on the rolls.
    So what are policymakers to make of this, especially as we consider 
the next steps in welfare reform? I would argue that it backs up our 
efforts to expect and support more parents in work.
    All sides--the Administration, House and Senate, Republican and 
Democrat--have proposed raising the target work rates for welfare 
recipients.
    This new data confirms that states can satisfy higher work rates, 
since there ALREADY is more work going on than we previously knew. 
While that is encouraging news, more must be done.
    I am very interested in hearing Secretary Horn's testimony and 
discussing its implications. This hearing, like our reauthorization 
legislation, should help States increase the share of welfare 
recipients who are working and moving up the career ladder.

                                 

    Mr. MCDERMOTT. Thank you, Mr. Chairman. We want Temporary 
Assistance to Needy Families (TANF) to help those in need. We 
want every available TANF dollar to reach those who qualify. It 
is not unreasonable--in fact, it is prudent--to have 
appropriate checks and balances in place to safeguard TANF from 
possible abuse. However, the experts tell us that no large 
program in the public or private sector is immune from some 
abuse, and that our goal should be to make sensible steps to 
prevent it. I want to work together with you to safeguard TANF.
    With that in mind, I look forward to hearing the 
suggestions from HHS on a tool that may help verify the 
employment status of TANF recipients. I am open to hearing 
about an electronic database called the National Directory of 
New Hires, which already collects employment data for the 
purposes of collecting delinquent child support and may provide 
earnings information that is not necessarily reflected in a 
state's TANF data.
    However, as we work together to safeguard TANF, we must 
also work together just as diligently to safeguard the rights 
of the people involved. We cannot, and we must not, permit a 
shortsighted rush to judgment under the guise of fiscal 
prudence. For instance, we should demand that the appropriate 
safeguards are in place to independently verify the employment 
status of a person before we rely on a national database to 
reduce or eliminate TANF benefits for the non-reported work.
    Equally important, while we are safeguarding the system, 
let's remember that TANF recipients overwhelmingly are decent, 
honest, hardworking Americans. They just need a little help to 
find a path out of poverty. By and large, they are single 
mothers and children, not cheats. We can't forget that. There 
is more we can and should be doing. Our zeal to find people who 
may be receiving some overpayment should be matched by our 
desire to reach out to the countless families who are eligible 
for TANF but do not receive any help from us. Less than half--
48 percent--of eligible TANF families actually receive any TANF 
assistance. Let's be clear about something. TANF is not exactly 
a cash cow for poor Americans. On the contrary, TANF, on 
average, provides assistance that is a meager 29 percent of the 
poverty level for a single mother and two children.
    To those Republicans who suggest that a TANF entitlement is 
an enticement not to find work, I suggest you replace the 
batteries in your reality meter. There is simply no truth to 
that brand of cruel and insensitive rhetoric. Here is a fact we 
ought to have stenciled on the wall: a full-time worker in a 
minimum wage job with two children at home will receive 69 
percent of the poverty level this year. That is the lowest 
level on record going back all the way to 1959. Even if you add 
the earned income tax credit, this family still remains below 
the poverty level. Regrettably, minimum wage work is not a 
guaranteed exit from poverty.
    As far as I am concerned, TANF is an investment by 
Americans in Americans. It is a helping hand; not a handout. It 
is a commitment to the future and to the people who will shape 
it. I don't mind saying that I am worried about the purposes of 
today's hearing. If we are here to consider ways to safeguard 
the system and the people in it, that is fine. If we are here 
to consider ways to reach out to those who we aren't reaching, 
that is even better. If this is a smoke screen to undermine the 
ongoing debate about TANF work requirements, then we do a 
disservice to the process, program, and people involved.
    In fact, I think we are way off base, and here is why. 
First, the new hire wage information used in the HHS ten-State 
statistical analysis is based on quarterly data; and it is, 
therefore, not directly comparable to TANF administrative data, 
which is monthly. It is an apples-to-oranges comparison that 
perhaps misleads, and that may not illuminate this debate.
    Secondly, the new hires data does not provide any 
information on the number of hours worked. That is relevant to 
the determining participation rates under TANF.
    Finally, those individuals which the new hire data shows to 
be working with earnings in excess of a state's TANF eligible 
level would not even be counted toward a state's work 
participation rate under the Republican welfare bill which 
passed out of this Committee several weeks ago. Lest we forget, 
that legislation does not include an employment credit to 
reward States for people who actually leave welfare for work.
    If we are really after data--not safeguards--then we ought 
to consult with organizations that can address the real 
question, not the smoke screen. One such organization is the 
Manpower Demonstration Research Corporation, or MDRC, which has 
conducted comprehensive reviews of welfare programs across the 
country. Here is what the MDRC has said about the Republican 
welfare bill when it was proposed in 2002--and it is really not 
much different today:
    ``To meet the standards being proposed, the most successful 
State welfare programs that have been evaluated would have to 
be restructured radically. This restructuring could have the 
unintended effect of distorting priorities, diverting 
resources, and driving up the costs for child care and work 
experience slots, with the potential consequence of undermining 
the very success that is now being celebrated.''
    Those closest to the issue know it best. For instance, the 
Governor of my State said that the Republican TANF proposal 
will require Washington State to move its caseload toward 
lower-cost, lower-return work experience programs. These are 
make-work programs that Washington State recently discontinued, 
because they demonstrated a low rate of success in moving the 
recipients to private employment.
    Mr. Chairman, governors, local officials, agency 
caseworkers, and intervention organizations overwhelmingly 
agree that the Administration's proposals are way outside the 
mainstream. It has been this way for 3 years, but the 
Administration keeps trying to sell the same bottle of snake 
oil as an elixir that will cure everything and anything. It is 
our job to see TANF for what it is: the faces, the hopes, and 
the aspirations of countless numbers of disadvantaged Americans 
who are trying to escape poverty. We should reach out with a 
hand, not a stick. We strengthen and safeguard TANF best by 
strengthening its ability to help those who need help. It is 
time to stop acting like TANF is nothing but a handout. TANF is 
nothing less than an investment in America's future, and we 
ought to act like it and make decisions on that basis. I look 
forward to Mr. Horn's testimony. Thank you.
    Chairman HERGER. Thank you, Mr. McDermott. Before we move 
on to our testimony today, I want to remind our witness to 
limit his oral statement to 5 minutes. However, without 
objection, all of the written testimony will be made a part of 
the permanent record. Our witness this morning is the Honorable 
Wade F. Horn, Assistant Secretary for Children and Families at 
the HHS. Dr. Horn, it is good to see you again. Please proceed 
with your testimony.

   STATEMENT OF THE HONORABLE WADE F. HORN, PH.D., ASSISTANT 
SECRETARY FOR CHILDREN AND FAMILIES, U.S. DEPARTMENT OF HEALTH 
                       AND HUMAN SERVICES

    Dr. HORN. Thank you, Mr. Chairman and Members of the 
Subcommittee. I am very pleased to appear before you today. As 
I don't have to tell Members of this Subcommittee, the Personal 
Responsibility and Work Opportunity Reconciliation Act has had 
profoundly positive effects. Since 1996, welfare caseloads have 
declined by 55 percent. Even more importantly, today 1.6 
million fewer children live in poverty than in the final year 
of the Aid to Families with Dependent Children program.
    The information I am providing to the Committee today 
builds on these achievements, and suggests that more TANF 
recipients may be working than many believe. More specifically, 
our recent work suggests that the NDNH, which the 
Administration for Children and Families (ACF) has used to 
boost child support collections to $21.9 billion in fiscal year 
2004, has additional possible applications that will make it 
possible for States to further reduce TANF caseloads by helping 
to identify individuals who are employed while receiving TANF 
benefits.
    We began our investigation of the use of the NDNH with a 
pilot test in the District of Columbia. For this pilot study, 
the D.C. Department of Human Services submitted the 
unduplicated Social Security numbers of 20,096 TANF adults to 
the Office of Child Support Enforcement, to match against 
information contained within the NDNH. The results of those 
matches are shown on the first chart that is displayed on the 
easel.
    [The information was not received at time of printing.]
    Of this number, 6,681 individuals, or 33 percent of the 
total, were matched with information contained with the NDNH. 
Of these, the District independently verified that 5,410, or 81 
percent of the matches, were actually employed; of which only 
226 had verified wages reflected in the D.C. TANF case record. 
Of the 5,184 clients verified as employed, but who had not 
reported their earnings to the D.C. TANF agency, 2,436, or 47 
percent, were closed because their earnings exceeded the income 
threshold for receipt of TANF cash benefits; while 2,748 cases, 
or 53 percent, earned enough to have their cash benefits 
reduced. The estimated savings from the case closures and 
reduced benefits was nearly $10 million, an amount just over 10 
percent of the District's annual TANF block grant.
    Building on the D.C. pilot, ACF began working with ten 
States, representing nearly half of the Nation's caseload, to 
compare what was reflected about employment in the State TANF 
caseload information with what is known from the NDNH. The 
results of that analysis are shown on the second chart. A total 
of 552,033 valid Social Security numbers for TANF adults in the 
ten States, for the month of October 2004, were matched against 
the NDNH. The findings indicate that in every single State, 
more TANF adults were involved in jobs than was reflected in 
the employment rates of the TANF data reporting system.
    Based on the D.C. pilot and the ten-State findings, we 
believe there are practical benefits of using the NDNH for 
State TANF agencies. First, the NDNH can help States identify 
potential employment leads within days, rather than months, by 
providing new hire information for those who go to work for a 
multi-State employer, the Federal Government, or across State 
lines. This information is a critical starting point to good 
case work.
    Second, regular and timely matching of TANF caseloads with 
the NDNH can help States learn how recipients are faring; 
whether they need help, and whether they don't need help. This 
information can help States better plan agency resources for 
helping those employed maintain and advance in employment and 
overcome obstacles that could otherwise result in a family 
returning to assistance.
    Third, the NDNH can identify individuals who are working 
and earning too much to qualify for cash assistance. This can 
help those families preserve their time-limited assistance, and 
better target TANF dollars to those most in need.
    Further, we also can use this information to help working 
families obtain other income supports, such as the earned 
income tax credit and child support.
    We believe the use of the NDNH is so promising that we are 
sharing this information with States and inviting them to 
partner with us in a regularly scheduled computer matching 
process. In addition to the practical benefits available to 
State TANF agencies through the NDNH, we believe there are a 
number of implications for welfare reform, as well. First, many 
more TANF recipients are capable of finding work than some 
believe. That is because they are working. They are just not 
known to be working to the local TANF agency. Consequently, 
TANF must continue to be focused on an expectation of work and 
on moving TANF beneficiaries into work.
    Second, given that many more current TANF recipients may be 
working than is known to State TANF agencies, higher work 
participation rates may not be as much of a challenge to meet 
as some believe.
    Third, securing child care may be less of a challenge than 
some believe; since nearly all of this otherwise unreported 
employment is occurring among single moms with children.
    Finally, to the extent that the NDNH can identify TANF 
clients who are receiving cash benefits to which they are not 
entitled, this would free up funding which could then be used 
to provide services to more TANF families, or enhance services 
for those already being served.
    Mr. Chairman, the dramatic reductions in welfare caseloads 
and child poverty since 1996 are among the most positive social 
developments of the last 30 years. The need for welfare reform 
didn't end with the implementation of the 1996 Act. More 
remains to be done, including the enactment of H.R. 240. While 
we work toward that passage, initiatives like the NDNH can do 
much more to spur State TANF agencies to further reduce 
caseloads and move the TANF families of today toward work and 
self-sufficiency. The Secretary and I stand ready to work with 
you now and in the future to bring economic independence within 
the reach of all of America's most needy families. Thank you. I 
will be happy to answer any questions you might have.
    [The prepared statement of Dr. Horn follows:]
Statement of The Honorable Wade F. Horn, Ph.D., Assistant Secretary for 
  Children and Families, U.S. Department of Health and Human Services
    Mr. Chairman, and members of the subcommittee, I am pleased to 
appear before you today to share new information about employment 
levels of Temporary Assistance for Needy Families (TANF) families. 
Recent work by the Administration for Children and Families offers some 
exciting insights on the number of working families that may be helpful 
as the Congress moves forward to reauthorize the TANF program and other 
critical programs included in welfare reform.
    First, I want to express my gratitude to the Chairman and members 
of the subcommittee for your efforts to move legislation patterned on 
the President's proposal, ``Working Toward Independence.'' Since I 
appeared before you in February to testify on welfare reform results 
and TANF reauthorization you have reported a reauthorization bill, H.R. 
240, to the Full Committee. We look forward to the Congress 
reauthorizing TANF soon to help even more of America's TANF families 
realize the dream of economic independence.
    I would like to use my time today to briefly reiterate key results 
from the first phase of welfare reform as a springboard for discussing 
the information we have gathered most recently on employment of TANF 
families.
Background
    The enactment of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996 (PRWORA) has had a profound, positive impact 
on some of our nation's most vulnerable families. Congress granted 
States flexibility to change welfare from a system that paid people to 
stay out of the workforce and remain dependent on government, to one 
that encourages--insists, actually--that those who can, go to work as 
quickly as possible.
    Since enactment, welfare caseloads declined by 55 percent--from 4.4 
million families to just under 2 million families, the lowest number 
since 1970. Not only did single-parent labor-force participation reach 
historic levels, but the earnings of those households made significant 
gains as well. The child poverty rate declined from 20.5 percent in 
1996 to 17.6 percent in 2003. Today, there are 1.6 million fewer 
children living in poverty than in 1996.
    I believe there are three primary reasons why these results were 
achieved:

      First, welfare reform stressed reciprocal responsibility. 
Rather than guaranteeing a lifetime entitlement to cash so long as a 
recipient did not go to work or marry someone who worked, the new 
system offered recipients a cash benefit but with the expectation that 
the recipient would work or take steps to go to work in return for that 
benefit.
      Second, welfare reform incorporated a ``work-focused'' 
strategy. This does not mean that the challenges TANF recipients often 
face, including workplace skill deficiencies, life challenges, and 
logistical hurdles, were neglected. What ``work focused'' does mean is 
that the TANF agency provides supportive services so that the poor can 
focus on finding, and keeping, gainful employment.
      Third, and perhaps more important, the architects of 
welfare reform believed that welfare recipients were capable of work. 
They did not consider welfare recipients to be helpless ``clients'' 
forever in need of government assistance. Rather, they believed that 
welfare recipients could compete in the labor market and succeed.
Evidence of More Employment
    Now there is even better news related to employment and TANF from a 
growing body of evidence suggesting more TANF recipients may be working 
than many believe. First, TANF data on reasons for case closure have 
persistently understated the role of employment. We alluded to this 
problem in the Sixth Annual TANF Report to Congress, where we said, 
``understanding the reasons for case closure is limited by the fact 
that States reported 26.4 percent of all cases as closed due to `other' 
unspecified reasons. For example, while independent studies of the 
reason for families leaving welfare typically find that somewhat over 
half leave as a result of employment, States reported only 17.2 percent 
of cases closing due to employment, clearly an understatement of the 
true rate. Many closures due to employment are coded as failure to 
cooperate or as some other category because at the point of closure, 
the agency often is unaware that the client became employed.''
    This undercount in administrative data may occur because some 
recipients obtain employment, but do not immediately notify the TANF 
agency, and when it comes time to recertify eligibility, they simply do 
not keep the appointment. The TANF agency then closes the case, but 
because it does not know the reason, it simply classifies the exit due 
to ``failure to comply,'' ``other,'' or ``voluntary closure.'' In some 
States, adults who work but do not report their employment may appear 
to be out of compliance with work requirements and are listed as closed 
due to a ``work-related sanction.'' Researchers at the Urban Institute 
have found differences between the administrative data reported by 
States and research survey data that indicate that work-related reasons 
are substantially more important to case closure than the 
administrative data would indicate.
    Further, leaver studies from 20 States and the District of Columbia 
indicate that 48 percent of former recipients, on average, left cash 
assistance for employment or because of increased earnings, about three 
times the percentage reflected in TANF administrative data reported by 
the States.
    In addition to these numerous studies supporting higher than 
reported employment, I would like to share a new source of evidence 
showing that more recipients (both on and off the TANF caseload) are 
working than one might infer from TANF administrative data alone. But 
first I'd like to provide a brief overview of the current data 
collection mechanisms.
    There are several ways States determine whether recipients are 
working. The first is recipient self reporting. Recipients report that 
information to the State and the State in turn, reports it through TANF 
administrative data to us. We know that some recipients, for whatever 
reason--they are too busy, they cannot get through to the agency, or 
they just forget--neglect to inform the State agency that they have 
started working.
    The second source of information is the ``Income and Eligibility 
Verification System'' (IEVS) for public assistance programs mandated by 
Congress in 1984 in recognition of the need for information to 
supplement recipient reporting. IEVS is a battery of computer matches 
that includes State Quarterly Wage data, Unemployment Insurance data, 
Social Security data, and unearned income data from the Internal 
Revenue Service (IRS). While IEVS is a great tool for correcting 
overpayments, it does not provide access to a national quarterly wage 
data base or access to timely new hire data.
    States do have access to new hire data in their State Directory of 
New Hires (SDNH) maintained by the child support enforcement agency but 
as with IEVS, these data are limited to in-State data only. 
Additionally, employers with workers and businesses in more than one 
State are given the option to select one State from which to report all 
new-hire information for its operations throughout the country. So, 
when Wal-Mart reports all of its ``new hires'' to Colorado, neither 
Maryland's IEVS nor its SDNH would be able to find out about those 
``new hires'' in a timely manner. Many employers like Wal-Mart, hotel 
and food service chains, banks, hospitals, and retail outlets report 
``new hires'' through a single State. Currently, over 22,000 multi-
State companies and another 46,000 multi-State subsidiaries report to a 
single State. Whether we are talking about the Bank of America or the 
Postal Service, many of these companies employ TANF recipients. A TANF 
recipient could literally be working next door to a TANF agency and not 
show up in a State ``new hires'' match.
The National Directory of New Hires (NDNH)
    The National Directory of New Hires (NDNH) offers solutions to 
these problems. The NDNH was authorized under welfare reform to provide 
a national database of employment information for the purpose of 
collecting child support payments. Managed by ACF's Office of Child 
Support Enforcement, the NDNH has played a role in raising child 
support collections to $21.9 billion in fiscal year 2004. The NDNH has 
three components:

      New Hires information tells us that a potential employee 
filled out new hire paperwork including a W-4 form which is the form 
employees use to report tax withholding information to employers. The 
employer forwards that information to the SDNH which then submits the 
W-4 data to the NDNH. It provides timely information--the new hire 
information is generally made available for matching purposes within 30 
days of the date of its filing. The NDNH provides another advantage in 
that it is, by definition, national data. It provides out-of-State 
information, including companies that report elsewhere and new hires 
that work in other States.
      Quarterly Wage (QW) data in the NDNH is about six months 
old, similar to IEVS quarterly wage data, and most sources of wage 
information. However, the added benefit of the NDNH quarterly wage data 
is that it is national data, which provides some additional information 
on employment in other States.
      Unemployment Insurance (UI) information tells us whether 
a recipient has applied for or is receiving unemployment benefits.

    Another advantage of the NDNH is that it provides Federal 
employment information, which is not available with State-based 
matching sources. Through the NDNH, we can get information on possible 
employment, for example, at the Social Security Administration in 
Baltimore, civilian employment at military facilities, or Yosemite 
National Park in California. These are all places where the Federal 
government employs workers, some of whom may be TANF recipients.
    Of course, not everyone who is employed is in the NDNH. Individuals 
would not be included if they are self-employed or are working the cash 
economy. And, of course, the NDNH would not pick up illegal activity. 
Even when there is a match, it does not necessarily mean the person is 
actually working. An individual could have been offered a job and 
filled out a W-4, but later accepted another job and filled out a 
second W-4. Or, the individual may have failed to show up for work or 
left a job shortly after starting.
    Nevertheless, the NDNH information is available on a nationwide 
basis and offers more comprehensive data than IEVS or SDNH. With these 
advantages we sought to find out what would happen if we ran the Social 
Security numbers of the TANF caseload against the NDNH.
    We began our investigation of the potential to match NDNH and TANF 
data with a pilot test in the District of Columbia. D.C. was an 
important test case, because many residents of D.C. work outside the 
District--in Virginia and Maryland--and many work for the Federal 
government. TANF officials in D.C. believed that matching with the NDNH 
could yield valuable new information about their caseload that would 
enable them to improve services and identify work participation they 
were missing.
    For this pilot study, the D.C. Department of Human Services 
submitted the unduplicated Social Security numbers of 20,096 TANF 
adults to the Office of Child Support Enforcement in four matches 
conducted between June 2003 and September 2004. For each match, the 
District obtained information on earnings and W-4 reports over the 
preceding 15 months. The total combined period extended from April 2002 
to September 2004.
    The NDNH matched 6,681 individuals, or 33 percent of the 
cumulative, non-duplicated Social Security numbers submitted. Of these, 
the District independently verified the employment information in one 
of three ways. First, it checked against its own records. Second, if no 
record of employment was found, then attempts were made to verify 
employment with the listed employer. Finally, if unsuccessful at those 
two attempts, the recipient was contacted. The District verified that 
5,410 or 81 percent of the matches were actually employed, of which 
only 226 had verified wages reflected in the D.C. TANF case record. An 
additional 578 cases, or nine percent of matches, are still pending 
verification. And, for 10 percent of the matches, the verified 
information showed that the client was not employed.
    Of the 5,184 clients verified as employed but who had not reported 
their earnings, 2,436 (47 percent) were closed because their earnings 
exceeded the income threshold. The cash benefits of the remaining 2,748 
cases (53 percent) were reduced. Stated another way, of the 20,096 
unduplicated Social Security numbers, 12 percent of these cases were 
closed for excess earnings and 14 percent had their benefits reduced as 
a result of the NDNH match. The estimated savings from the case 
closures and reduced benefits are nearly $10 million, an amount just 
over 10 percent of the District's annual TANF block grant.
    We have built on these efforts by working with 10 States, 
representing nearly half of the nation's caseload. In this expanded 
effort, we conducted a preliminary match of the TANF caseloads against 
both the NDNH new hires data and the Quarterly Wage data for a single 
month--October of last year. We compared what was reflected about 
employment in the TANF data reported to us, with what is known from the 
NDNH.
    A total of 552,033 valid Social Security numbers for TANF adults in 
the 10 States for the month of October 2004 were matched against the 
NDNH. The findings suggest that in every single State more TANF adults 
were involved in jobs than reflected in the employment rates of the 
TANF data reporting system. A comparison of employment rates using 
average monthly TANF data for the first quarter of FY 2005 to the 
percent of those reporting any quarterly earnings from the NDNH 
Quarterly Wage data for the same time period shows a 9.3 percentage 
point differential between the two data sources (25.1 percent vs. 34.4 
percent). Across the 10 States, the employment rate differences ranged 
from 2 to 22 percentage points. Although the two rates are not measured 
in exactly the same way, there are important differences between 
employment reported by the TANF agency and the employment information 
available in the NDNH.
    One reason for the large differences in employment between what 
TANF agencies report and what is found in the NDNH may be explained by 
the fact that TANF agencies may not have timely access to all data on 
new hires. Across the 10 States for the month of October 2004, adding 
the ``out-of-State'' and ``Federal agency'' matches increased the total 
number of matches by nearly 50 percent--with increases ranging from 36 
percent to 114 percent. The large number of W-4 matches from many of 
these States is an indication of the multi-State employers who do 
business in one State, but report their new hire data to other States, 
or of cross-border employment. Even assuming that many of these matches 
would eventually show up in Quarterly Wage matches, the full complement 
of new hires matches found only in the NDNH gives TANF agencies the 
ability to ``locate'' new employment after about 30 days, rather than 
finding the recipient six months after they receive their first 
paycheck.
Implications for Using the NDNH
    Based on the D.C. pilot and the 10-State findings, we believe there 
are practical benefits of using the NDNH for State TANF agencies. 
First, the NDNH can help States identify potential employment leads 
within days, rather than months, by providing new hire information for 
those who go to work for a multi-State employer, the Federal 
government, or across State lines. This information is a critical 
starting point to good casework.
    Second, regular and timely matching of TANF caseloads with the NDNH 
can help States learn how recipients are faring--whether they need 
help, and whether they don't need help. This information can help 
States better plan agency resources for helping those employed maintain 
and advance in employment, and overcome obstacles that could otherwise 
result in a family returning to assistance.
    Third, the NDNH can identify individuals who are working and 
earning too much to qualify for cash assistance. This can help these 
families preserve their time-limited assistance, and better target TANF 
dollars to those most in need.
    Finally, we also can use this information to help working families 
obtain other income supports, such as the EITC and child support.
    We believe the use of the NDNH is so promising that we want to give 
every State a chance to determine the benefits. We are sharing this 
information with States and inviting them to partner with us in a 
regularly scheduled computer matching process. Further, in order to 
facilitate State use of the NDNH in the first year so they can test the 
benefits of these matches, we are exploring whether there are ways to 
provide some financial support to states where needed.
Implications for Welfare Reform
    Aside from the practical benefits that the NDNH delivers to the 
local agencies, we believe that there are a number of implications for 
welfare reform as well:

    1.  More welfare recipients are working than many believe. TANF was 
created to help families prepare and pursue work. Part of the success 
of these efforts is that many recipients understand this and get jobs 
on their own--and far more often than our agencies are able to track. 
That is, many more TANF recipients are capable of finding work than 
some believe, and consequently TANF must continue to be focused on an 
expectation of work for individuals and on helping each of them make 
that step and succeed.
    2.  Meeting higher work participation rates may not be as difficult 
as some believe. If the true rate of employment is higher than 
reported, reaching a 50 percent work participation rate, with an 
employment credit and/or an updated caseload reduction credit, is not 
nearly as difficult as some would portray. With the NDNH as a tool to 
enhance effective case management, the proposed new requirements are 
achievable.
    3.  There appears to be a greater capacity for TANF recipients who 
work to secure child care than many think, as nearly all of this 
otherwise unreported employment is occurring among single moms with 
children. This finding, however, should not be surprising. Studies of 
former TANF recipients consistently show that most leavers, even those 
with young children, do not use child care subsidies, even when they 
are eligible for them.
    4.  The NDNH information can lead to savings in the form of avoided 
costs by identifying those who are capable of self-support and who have 
found child care on their own. This frees up funding, which can then be 
used to provide services to more TANF families or enhance services for 
those already being served. The District, for example, saved nearly $10 
million, or 10 percent of its TANF grant. If similar results are found 
as we make access available to all States, significant resources would 
be available to States to use for child care or other services for 
those currently employed and to assist those not engaged in work to 
move into the workforce.
Conclusion
    When properly used, the NDNH will advance the underlying goals of 
welfare reform: helping move even more recipients off welfare 
dependency; breaking the cycle of intergenerational dependency; and 
promoting self-sufficiency through full-time, stable employment.
    As President Bush has remarked on the reauthorization of welfare 
reform, ``This compassionate approach will help many more Americans 
realize a better life of independence, hope and dignity that comes with 
having a job. It will also promote strong families . . . while freeing 
States to seek innovative ways to improve services to those who are 
transitioning from the welfare rolls to the workforce.''
    Mr. Chairman, the information and plans I have shared with you 
today represents a next step that we and States are taking in welfare 
reform. But, the fundamental program changes that are embodied in the 
President's proposal and H.R. 240 await the action of Congress. The 
Secretary and I stand ready to work with you on reauthorization to make 
economic independence within the reach of all America's neediest 
families. I would be happy to answer any questions.

                                 

    Chairman HERGER. Thank you, Dr. Horn, for your testimony. I 
appreciate the work that you have done in this incredibly 
important area, and the Administration, and the overwhelmingly 
successful results we have seen. I believe, as you have 
mentioned, our goal and the purpose of this hearing today--one 
of many hearings on this issue--is to continue to improve the 
system and help those individuals who most need help in our 
society. With that, we will turn to questions. For the first 
question, would the gentlelady from Pennsylvania, Ms. Hart, 
care to inquire?
    Ms. HART. Yes, I would. Thank you, Mr. Chairman. First, I 
am really pleased to see that we did a pilot program and we 
have gotten some really useful information from it. A couple of 
things. I am interested in the child support collections issue, 
and I noticed in your testimony you mentioned that there is 
$21.9 billion as the total collected in 2004. Maybe I missed 
it, but is there some evidence of a significant increase? Could 
you expand on that a little bit?
    Dr. HORN. We have certainly seen increases, particularly 
since the passage of the Personal Responsibility and Work 
Opportunity Reconciliation Act (PRWORA) in 1996. As you are 
aware, PRWORA provided a lot of new tools to the Office of 
Child Support Enforcement and local child support enforcement 
agencies, to ensure that the child support that children need 
and deserve is, in fact, provided to them.
    Ms. HART. Okay. I appreciate that. Obviously, I am familiar 
with a number of the other resources that are at hand, and that 
is a huge issue, I think, for a lot of families, obviously. I 
am also interested in the cost of running the data match. Will 
States be paying for that? Will HHS pay for that? Is there an 
estimate of how much that might cost?
    Dr. HORN. We believe that simply doing a monthly caseload 
match for all 50 States and territories of the NDNH W-4 
information alone would cost about $700,000. If States were to 
match not only against the W-4 data included in the NDNH, but 
also the quarterly wage information, and the UI information, 
then that figure goes up to about $1.5 million. Now, I want to 
emphasize, the total cost of doing a complete match, on a 
monthly basis, for every State and every territory is $1.5 
million in a program with a total budget of $16.7 billion.
    Ms. HART. Wow.
    Dr. HORN. It is a relatively low-cost item.
    Ms. HART. It is. It is a lot of bang for the buck. The 
other question I had, when you talk about comparing the lists 
and some of the welfare recipients who were working, I am 
always concerned about working officially--under the table, 
that sort of thing. Are all of the people who are found to be 
working actually working at jobs where they were reported and 
paying--well, probably not paying taxes, if they were under a 
certain income. Were they actually officially working; or were 
some of these folks found to be working under the table, for 
example?
    Dr. HORN. Anyone who is working in the cash economy, or who 
is self-employed, or is an independent contractor, or is 
engaging in illegal activities for earnings----
    Ms. HART. They are not going to be in the NDNH.
    Dr. HORN. They are not going to be in the NDNH.
    Ms. HART. We have a lot of official hired people who we 
just weren't matching, databases that just weren't mixing. This 
is really something that really should have been at our 
disposal a long time ago.
    Dr. HORN. If you look at the D.C. pilot study, 26 percent 
of their caseload were employed for wages, and there is 
information about them in the NDNH. Those cases were not known 
to be working to the D.C. TANF agency.
    Ms. HART. Wow. Okay. Plus, probably, a significant number 
who may be working in the underground economy. We will work on 
that another time. What is the schedule? Is there an estimate 
for when States are going to really be able to start accessing 
this information and moving forward?
    Dr. HORN. We have been working with States for the last 6 
or 7 months to develop memorandums of understanding, so that we 
can get going with this effort. Some States may start as early 
as this month. We hope to have as many as 48 States on board by 
October of 2005. We are moving pretty quickly with this. To 
answer more fully one of your previous questions, we are 
exploring with the Department our authority to be able to help 
for the first year, to offset some of the costs associated with 
doing this match, so that States can determine for themselves 
how useful this matching process is.
    Ms. HART. Okay. It sounds to me like we are making some 
progress in the right direction, and I appreciate your work on 
this. I yield back, Mr. Chairman.
    Chairman HERGER. I thank the gentlelady. Would the 
gentleman from Washington, Mr. McDermott, like to inquire?
    Mr. MCDERMOTT. Mr. Horn, when I look at this ten-State 
thing, it looks like there are a lot of people who are cheating 
out there. Is that right?
    Dr. HORN. I wouldn't say that.
    Mr. MCDERMOTT. You wouldn't say that?
    Dr. HORN. No, I wouldn't.
    Mr. MCDERMOTT. I am glad you wouldn't say that. Have you 
brought the States in and asked them why they have these 
discrepancies?
    Dr. HORN. They don't have the information available to 
them, let me, first of all----
    Mr. MCDERMOTT. Well, wait a minute. We are talking 
caseworkers now. If I am working, and I am getting welfare, and 
I get a job, I go in and I am supposed to report my new 
information, right?
    Dr. HORN. If you are a welfare recipient, you are supposed 
to, yes.
    Mr. MCDERMOTT. Yes. Now, I have given it to you. If you 
don't report it, am I the cheat?
    Dr. HORN. Let me be very clear. We don't think that the 
NDNH match is primarily a tool to find welfare cheats.
    Mr. MCDERMOTT. Ah. Okay.
    Dr. HORN. We think it is primarily a tool to help TANF 
agencies work their caseload. If you are a TANF recipient, and 
you go to the TANF office, what do they tell you? They say, 
``Get a job.'' You go out there; you are looking for a job; you 
get a job. After you have gotten a job, you get a letter that 
says, ``Hey, we haven't seen you in a couple of weeks. Come 
into the office to continue your job search.'' Well, if you are 
a TANF recipient that is now employed, you say, ``I don't have 
to do that; I have a job,'' and so you throw the letter away. 
You get another letter that says, ``If you don't come in, we 
are going to reduce your benefits.'' You go, ``Well, fine. I am 
already working.''
    There are a lot of reasons why a TANF recipient might not 
report the fact that they are working; not because they are 
trying to cheat, but because they are busy, they neglect to 
tell the TANF agency. This is a tool for the local agency to be 
able to work their cases. The reason this is so important is 
not simply in order to generate savings, but because for as 
long as that person, who is now working, is officially on the 
rolls of the TANF agency, their time clock is ticking. We are 
not doing that recipient any favor by allowing their time clock 
to tick while they are working. There are a lot of different 
purposes for this, but it is mostly a starting point for local 
agencies to work their cases.
    Mr. MCDERMOTT. Tell me about these States. You said one of 
them is about ready to implement. What are they implementing, 
this State? You don't give us any names. I don't know who they 
are. Could you tell us the name of this State that is 
implementing?
    Dr. HORN. That is thinking about implementing in July?
    Mr. MCDERMOTT. Yes.
    Dr. HORN. I have a chart here.
    Mr. MCDERMOTT. I would like to have them come in to the 
Congress and testify on what they are doing, how they are doing 
this all of a sudden, when they haven't been doing it before.
    Dr. HORN. Well, it is interesting. The way that it is set 
up is that since 1984 the local TANF agencies are supposed to 
match against a system called the Income and Eligibility 
Verification System (IEVS), which is at the State level. They 
are mandated, in fact, we impose penalties on States that don't 
match against the IEVS database. The problem with the IEVS 
database is it only includes quarterly wage data from an 
employer reporting in that State. If you are living in D.C. but 
working in Virginia, that quarterly wage data does not go to 
D.C.'s IEVS; it goes to Virginia's IEVS.
    In addition to that, if you are working in the State of 
Washington, but you are working for a multi-State corporation 
like Wal-Mart, multi-State corporations can choose where to 
file both their quarterly wage data and their W-4 information. 
Generally, what they do is they pick a single State. They don't 
do it in every single State. If you are working for a Wal-Mart 
in Washington State, that information may be processed in 
Colorado; not in Washington State.
    A person may be working in Washington, and yet if a State 
matches against the IEVS data in that State, you are not going 
to pick up multi-State corporations; you are not going to pick 
up out-of-State employment; and you are not going to pick up 
Federal employment. There are limitations to current matches.
    Mr. MCDERMOTT. Let me stop you, though. One of the issues 
here is that you have got data that is quarterly. If I am this 
recipient, and I go to work for a month, and then I am off, I 
am counted in the quarterly data, right?
    Dr. HORN. Right.
    Mr. MCDERMOTT. I may not show up in the monthly data for 
the next couple of months. I am not going to be shown as 
working; although you will be shown as working in the quarterly 
data.
    Dr. HORN. You are exactly correct. If you look at the ten-
State match, we took the October 2004 caseload. We matched 
against the quarterly wage information we had for that quarter. 
Well, it is not only possible, my guess is it happened a number 
of times, that somebody after October, they get hired, because 
of the holiday season. They get some part-time employment, and 
they have some wage data in that quarter.
    It is not that they are cheating. In fact, all this says 
is, ``Here is a starting place.'' This is a starting place for 
you to start to work your case. If you don't know somebody is 
employed part-time, or if you don't know they are employed, 
then you have a different perspective on how to help them. If 
they stop showing up, you may close their case, you may put 
them in sanction status; when in fact it is not because they 
are being uncooperative, it is because they went and did 
exactly what you told them to do, which is to get a job.
    Mr. MCDERMOTT. Could you tell us the name of the State?
    Dr. HORN. Yes. I will list the States who have indicated 
they are interested in starting in July: Arizona, California, 
Delaware, District of Columbia, Maryland, Massachusetts, 
Mississippi, Missouri, Montana, New Jersey, North Carolina, 
Ohio, Oregon, Pennsylvania, Rhode Island, Tennessee, Utah, and 
Wisconsin.
    Mr. MCDERMOTT. I hope the Chairman will have a 
representative sample of those people come in and tell us what 
this is going to mean to them, to integrate your systems. I 
think it is going to take people.
    Dr. HORN. It is going to take people, it is going to take a 
lot of case work on the local level, absolutely.
    Mr. MCDERMOTT. Yes, a lot of case work.
    Dr. HORN. You bet. That is what they are supposed to do.
    Mr. MCDERMOTT. If your caseload is a hundred; somebody 
tells you something; you don't write it down, and it doesn't 
get into the database. It shows up as an error. I really think 
that that is why we ought to have some States in here to 
testify. Thank you, Mr. Chairman.
    Chairman HERGER. The gentleman is welcome. I would 
encourage these States to submit testimony for the record, as 
is requested by the gentleman from Washington. Now to the 
gentleman from Louisiana, Mr. McCrery, to inquire.
    Mr. MCCRERY. Thank you, Mr. Chairman. My good friend from 
Washington, Dr. McDermott, in his opening statement made a 
point about a minimum wage worker with a family of three only 
getting 68.9 percent of poverty level for his work. That is 
true. If it were a fact that the minimum wage workers, as a 
percent of our total workforce, remained constant, then that 
statistic might be more relevant. If you look at another piece 
of data, you see that it is not so relevant. In 2004, only 2.7 
percent of hourly workers in this country were making minimum 
wage or less. That is less than half of what it was just 10 
years ago, and about a third of what it was 20 years ago.
    There are all kinds of ways to make progress. The market 
seems to be working to pay people what they are worth, as 
evidenced by the data that I have just shared with you. Now, 
that is not to say that the minimum wage is not relevant. I 
think it is. There is more data out there that indicates that 
the picture is not as bleak as the gentleman from Washington 
might have implied.
    Now, Dr. Horn, I think the same gentleman did make a good 
point with respect to the costs that States might be looking at 
when they shift to this system. Looking at the pilot programs 
that you have some evidence from, would you say that States 
net, after this system might be implemented, would be a coster 
or a saver for the States?
    Dr. HORN. It is hard to take a look at our pilot test in 
Washington, D.C., and not conclude that it would be a saver. As 
I indicated in my testimony, the savings to the D.C. TANF 
agency was $10 million, representing about 10 percent of their 
entire TANF block grant. That $10 million doesn't go back to 
the Federal Treasury. That $10 million stays in Washington, 
D.C., for the use of the TANF agency to do lots of things, like 
provide more child care subsidies, more employment training, 
more work supports. This is not about taking money and putting 
it back in the Federal Treasury. It is about ensuring that we 
use the TANF dollars that are available to the most effective 
and efficient manner possible. In D.C. this clearly saved them 
a lot of money that they could then use for other kinds of work 
supports.
    Mr. MCCRERY. That is a great statistic. The question is, 
would that $10 million be eaten up in increased administrative 
costs because of the factors that Dr. McDermott pointed out, 
based on your experience working with the States?
    Dr. HORN. If every State matched their entire caseload for 
every month of a calendar year, or a fiscal year, the total 
cost nationally to match not just against the W-4 data but the 
quarterly wage earned and UI data would be $1.5 million, 
nationally. There were $10 million in savings in Washington, 
D.C., alone. It is hard to see how the additional cost of 
matching against the NDNH would not be overwhelmed by the 
amount of money that would be freed up when you are able to 
determine that some people are getting benefits to which they 
are not entitled.
    Yes, would they also have to work the case, like D.C. did, 
in order to verify whether the match indicated that there was 
employment? Yes, but that is what caseworkers are supposed to 
do. If TANF caseworkers are not working their caseload, what 
are they doing? If they are not in contact with the people who 
are on their TANF caseload, what are they doing? That is their 
job.
    Mr. MCCRERY. If the States in fact realized savings, net 
savings, from the implementation of this program, then they 
don't send that money back to Washington; they keep the money 
as part of their TANF grant. They can use that for authorized 
purposes under TANF, like child care, job search, all those 
things that are authorized uses of the TANF money. Is that 
right?
    Dr. HORN. Absolutely.
    Mr. MCCRERY. Now, States have tried something like this 
before, in using other data systems such as the IEVS, the 
Public Assistance Reporting Information System (PARIS), to try 
to help them with case work, try to help them learn more about 
the individuals that are on their welfare caseload. What is the 
difference between this new program and those systems?
    Dr. HORN. You could theoretically get all the information 
you wanted from the match with the NDNH by doing the following: 
you could match all your caseload against the IEVS, and you get 
quarterly wage data. You could then do another match against 
your State directory of new hires, and get your W-4 data for 
companies that file W-4s in your State. You could then match 
against the PARIS information system and get Federal 
employment. You could then call up the Child Support 
Enforcement Agency and ask for a list of the 60,000 multi-State 
corporations and subsidiaries that file in some other State; 
figure out how many of those 60,000 companies and subsidiaries 
operate in your State; contact every single State where they 
are filing their W-4 on wages outside of your state; do matches 
against all those States. Or you could do one match against the 
NDNH. Now, if you are a State, and you wanted that information, 
which one would get you all that information with the least 
amount of effort and expense?
    Mr. MCCRERY. In other words, they might actually save 
administratively.
    Dr. HORN. Oh, I think they would save a lot of money.
    Chairman HERGER. The gentleman's time has expired. To the 
gentleman from California, Mr. Becerra, to inquire. I might 
mention that we are in a vote, so as soon as we conclude this 
question, we will recess and return.
    Mr. BECERRA. Thank you, Mr. Chairman. Secretary Horn, thank 
you very much for the testimony. Let me explore a couple of 
things with you, because I think you are trying to drive us in 
the direction where we are able to ascertain who should and who 
shouldn't be on, and that way we can direct our resources where 
we really need them. You mentioned a couple of things in 
response to Mr. McDermott's questioning that I think are 
important. You mentioned this is a starting place; that we 
don't necessarily know if this information is going to give us 
the full answer, but it might lead us somewhere.
    Dr. HORN. Right. Exactly.
    Mr. BECERRA. Mr. Chairman, at some point I really think it 
is worthwhile, given the Secretary's testimony, that we have 
some of those States come before us, because I think the 
Secretary hit something on the nose very importantly. That is, 
what are some of these caseload workers doing? If they are not 
reporting the data, if somebody on welfare, who has tried to 
get herself off of welfare, is doing what she can, and she 
reports herself as working, but it doesn't get reported by the 
caseload worker--because the caseload worker is very busy, or 
whatever--she may pay the consequences because of policy 
decisions we make that will affect her ability, or someone else 
like her in the future, to actually get that job or have the 
child care she needs.
    I think it is important, Mr. Chairman, that we try to 
follow up with some of those State agencies or county agencies 
that actually administer the TANF laws, to make sure we 
understand why there is a discrepancy between what you found 
with the NDNH data, and the TANF administrative data that you 
received that shows in one case maybe more people are working 
than are reporting.
    I think it is extremely important because you are right, 
there are dollars here that we should be spending for folks who 
really need it. There aren't enough dollars to go around, 
especially in child care, and we really desperately need to 
concentrate those moneys where we can.
    I do have a concern with one of your statements. I think it 
was more in your written testimony, Secretary Horn, than 
perhaps what you said. That is with regard to child care, and 
to extrapolate from this initial starting-place study that 
perhaps welfare recipients don't need as much child care as we 
may think. Most of the studies that we have seen--studies by 
non-partisan institutions--have shown that the more that there 
is adequate, decent child care available to a welfare mother, 
the more likely she is to stay on a job, versus come back on 
the welfare rolls.
    I would just urge if we could make sure that your agency, 
along with the State agencies and county agencies, who are 
doing most of this administrative work, if we could follow up 
to find out what really happens to women who have children, who 
are trying to get off, and their ability to secure child care. 
I would hate to see us move forward on data that goes after 
those who really are cheating the system, and find that we 
ultimately affect women who are desperately working hard or 
getting themselves trained, and looking for decent child care 
and may not find it. Mr. Chairman, I don't really have any 
questions. Secretary, let me give you an opportunity to respond 
to anything I may have said.
    Dr. HORN. Well, one of the advantages of doing this match 
is you can locate people who are working. If you don't know 
they are working, you don't know that they may need a child 
care subsidy. They may have gone to work; found an informal 
child care arrangement, which may or may not be stable. You 
don't know that. You don't have any information about that.
    The advantage of this match is it gets you down a road 
where you can ask questions. You may find somebody who has got 
a job, and you may ask, ``What is your child care 
arrangement?'' They may say, ``Oh, it is very good. It is my 
mother, it is very stable, blah-blah-blah.'' Or they might say, 
``Well, you know, we are kind of--you know, my neighbor does it 
here.'' Then you say, ``Do you know that you are eligible for a 
child care subsidy?'' They may go, ``No.'' ``Well, let me help 
you get a child care subsidy, then, to get a more stable child 
care arrangement.''
    Mr. BECERRA. Well, the more we could do that, where we can 
actually direct folks to the right sources, versus having them 
do the fly-by-nights because they have no choice, I think the 
better off we all are. I hope, Mr. Chairman, what we can do is 
take this information and have other folks who can help us. 
Somehow, we have to understand why there are these 
discrepancies. You mentioned before, Mr. Secretary, in 
conversation with Mr. McDermott, that you are not implying that 
everybody is a welfare cheat.
    Dr. HORN. No, not at all.
    Mr. BECERRA. What we have to do, Mr. Chairman, I think, is 
take this information and, as the Secretary said, it is a good 
starting place, and then let's figure out, let's understand 
these discrepancies. Then we can make some real tough but good 
decisions on where to go.
    Dr. HORN. I agree.
    Mr. BECERRA. I appreciate your testimony.
    Dr. HORN. Thank you.
    Chairman HERGER. I thank the gentleman. I believe the will 
of the Committee is that we will have one more question, from 
the gentlelady from Connecticut, Mrs. Johnson, and then we will 
adjourn. I might mention that any Members who have questions 
can submit them for Dr. Horn to respond in writing to the 
Committee, and it will be part of the record. With that, to the 
gentlelady from Connecticut, Mrs. Johnson, to inquire.
    Mrs. JOHNSON. We have 4 minutes left, so those who want to 
go, go ahead. I just wanted to make this comment. First of all, 
you made a very important point that I think we are missing. 
There is a lifetime limit on how long you can be on welfare. 
These people don't realize that the clock keeps running. At the 
very least, I think you need to recommend that States change 
their process, so that in that first letter they send out to 
say, ``We haven't heard from you,'' they say, ``If you have got 
a job, it is in your interest to let us know, because we don't 
want you to use up your lifetime bank if you are already 
working''; and then the second point that, ``You could still be 
eligible for daycare subsidies and whatever. So please contact 
us.''
    We have got to make it a lot easier, because you are right, 
they need to be able to leave a message on the phone, they need 
to be able to deal with this through a computer message. I hope 
States will take seriously sending a different kind of letter 
in that first notification. I really want to congratulate you 
and your staff for the energy and creativity you put into your 
roles as leaders and managers of our TANF program. We have 
known about these banks. This could have been run a long time 
ago. The fact that you decided to do this really is going to 
make a difference, not only to States and the money they have 
available to provide daycare and support services, but also to 
the position each woman on welfare holds in regard to her 
lifetime bank. Also, to the sort of dignity and recognition she 
deserves for getting a job.
    I think this is a very exciting development. I am very glad 
you don't see this as proving that you are a cheat, or you are 
anything at all. It is just communication; it is just, ``Can we 
make the system serve you right?'' I think we forget about how 
many support services there are. If this were a question I 
would ask you to run through all the support services that a 
woman who is leaving welfare but working could be eligible for. 
They kind of don't know that. In the old program, you were 
either on or off; it was black or white. We have a far better 
system, both for supports and career development, than we have 
ever had. I think we can make use of this information to 
improve the quality of our service. I really thank you for your 
initiative and your leadership as an administrator. Wade, you 
are doing a fine job.
    Dr. HORN. I thank you.
    Mrs. JOHNSON. Your staff, too.
    Dr. HORN. I would like recognize two of my staff in 
particular, who have been really leading this effort. That is 
Grant Collins, who is the Deputy Director of the Office of 
Family Assistance, and David Siegel, who is the Acting 
Commissioner for the Office of Child Support Enforcement. If we 
don't use our expertise more in the service of the recipients, 
there is no way the States can help the recipients better. It 
is really a team sport.
    Mrs. JOHNSON. I have honestly never seen such creative 
leadership from the Federal level as I have seen in your 
Department in the last few years, and I just wanted to 
acknowledge that on the record.
    Dr. HORN. Thank you.
    Mrs. JOHNSON. I had better go vote.
    Chairman HERGER. I think we have about a minute on the 
vote. I would like to ditto what the gentlelady from 
Connecticut said, Dr. Horn. This is probably one of the most 
successful programs, the TANF program, that we have ever seen 
in this area to assist and help, again, these families and 
children who most need it. I want to thank you. I want to thank 
you for your testimony, and the team that you have assembled 
and the Administration. Again, thank you for providing this 
information as we consider ways to continue working to improve 
TANF's programs. With that, the Committee stands adjourned.
    [Whereupon, at 10:49 a.m., the hearing was adjourned.]
    [Submission for the record follows:]

                                             Community Voices Heard
                                           New York, New York 10029
                                                      July 29, 2005

To Whom It May Concern:

    We believe that the attached recently released report, The 
Revolving Door, highlights some of the problems with the way the work-
first approach is being implemented in states and localities. As you 
will see, the program in New York City has not been a success. We fear 
that increased work hours and work requirements are based on a faulty 
assumption that the type of program we evaluate in the attached 
document are far more successful than they actually are. We hope that 
our findings will be of use to the Committee as it moves forward on 
Welfare and Work policy planning.

    We have a 10-page designed and printed version of the attached 
Executive Summary (also attached for viewing as a pdf). If the 
Committee would like us to forward hard copies of this, please let us 
know. The Executive Summary is based on a 140 page report that can be 
downloaded off of our website: www.cvhaction.org. Additionally, hard 
copies of the larger report are available from us upon request.

            Thank You,
                                                   Sondra Youdelman
                                         Policy & Research Director
                                 ______
                                 
Executive Summary
   The Revolving Door: Research Findings on NYC's Employment Services
      and Placement System and Its Effectiveness in Moving People
                          from Welfare to Work
                  By Sondra Youdelman with Paul Getsos
                         A Research Project by
                         Community Voices Heard
                            Copyright  2005

Funded by JPMorgan Chase, the New York Community Trust, the
Robert Sterling Clark Foundation, and the Rockefeller Foundation.
Executive Summary

INTRODUCTION: The Failure of a Work-First Approach in Challenging Times
    In August 1996, President Clinton signed the Personal 
Responsibility and Work Opportunity Reconciliation Act (PRWORA) into 
law, eliminating the federal entitlement to public assistance, imposing 
time limits on the provision of assistance to poor families, and 
requiring states to impose strict work participation requirements. At 
the same time in New York City, Mayor Giuliani moved aggressively to 
dismantle one of the country's strongest social safety nets--placing 
primary emphasis on work and diversion. At both the local and national 
levels, a strong work-first approach was the philosophy that guided the 
development of new policies and programs associated with welfare 
reform.
    In New York City, the Human Resources Administration (HRA) 
instituted a comprehensive work-first policy--transforming welfare 
centers into job centers, expanding the local unpaid Work Experience 
Program (WEP) to cover tens of thousands of single mothers, instituting 
intensive job search activities for people on welfare, and aggressively 
sanctioning non-participating welfare recipients. The NYC welfare 
system was hailed as a national model. Indeed, city welfare rolls 
dropped an eye-opening 50 percent between 1996 and 2000, and the 
percentage of single mothers with jobs rose in the city as it did 
nationwide.
    The rapid economic growth and robust job creation of the late 1990s 
presented ideal labor conditions for welfare-to-work programs. A 
growing economy provided jobs for many who were forced away from public 
assistance. Unemployment rates fell to 30-year lows and wage rates for 
less skilled workers rose briskly.\i\ When recession hit in 2001, 
however, higher unemployment rates signaled that competition for 
available jobs would become much sharper.
---------------------------------------------------------------------------
    \i\ Mark Levitan and Robin Gluck, Job Market Realities and Federal 
Welfare Policy (New York: Community Service Society, September 2003), 
p. 14.
---------------------------------------------------------------------------
    In New York City, the impact of the recession was severe. 
Unemployment rates peaked in 2003 with an average overall rate of 8.5 
percent. Higher still were the unemployment rates for people of color 
in NYC: 12.9 percent for African-Americans and 9.6 percent for Latinos. 
While the economy slowly began to show signs of recovery in 2004, 
unemployment rates have yet to return to their 2000 levels.\ii\
---------------------------------------------------------------------------
    \ii\ Mark Levitan, Unemployment and Joblessness in New York City, 
2004: Better, But Still a Long Way to Go (New York: Community Service 
Society, February 2005), p. 7.
---------------------------------------------------------------------------
    With the change in circumstances, the many flaws of the New York 
City approach--and the strict national work-first model--have become 
evident. The hardest to employ have not benefited from ``work-first.'' 
Those with significant barriers to employment--including low levels of 
education, limited English proficiency, physical and mental 
disabilities, inadequate access to childcare and supportive services--
are still stuck in a welfare system that pushes them to move to work, 
even if they do not yet possess what they need to get and keep a job 
and move beyond the public assistance system.
    This report documents the results of a comprehensive examination of 
the Employment Services and Placement (ESP) System, a key program 
developed and administered by the Human Resources Administration (HRA) 
to further its work-first approach. The research set out to uncover 
whether or not currently operating job readiness and job placement 
programs accomplish their intended goals, what stands in their way, and 
how they might be improved to better serve the needs of the clients, 
the providers, and the system at large. Our findings point to a failure 
of this work-first model in achieving its main goal--moving people from 
welfare to work, into jobs and toward economic independence.
The Employment Services and Placement (ESP) System
    Since 1999, New York City's main strategy for moving work-ready 
welfare recipients to employment and self-sufficiency has been ``Full 
Engagement''--job readiness and job search activities two days a week, 
coupled with unpaid work experience the other three.
    Employment services for welfare recipients are provided by two main 
contracts: Employment Services and Placement (ESP) contracts for the 
``general population'' and Special Populations contracts for recipients 
with particular needs due to specialized circumstances such as 
homelessness and a history of drug abuse. Skills Assessment and Job 
Placement (SAP) contracts were also set up to serve applicants to 
public assistance, as they wait for their cases to open.

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    This report focuses on the services provided by the Employment 
Services and Placement System. The renewal contracts, established by 
the start of 2003, allocated up to $130 million for program services 
over three years--estimating that the program would service almost 
80,000 people in that time period.
    From the beginning, ESP contracts were solely performance-based. 
Vendors only got paid for results: job placement, 3-month retention, 
and 6-month retention. Most contractors can receive a maximum payment 
of $5,500 per client when someone they place in a job remains employed 
at 6 months.
    There are currently 9 vendors that hold ESP contracts. 
Collectively, the vendors now operate 26 sites throughout the city. 
Current vendors include a combination of for-profit corporations, large 
not-for-profit agencies, community-based organizations, and the City 
University of New York (CUNY).
    Each vendor is referred a different percentage of the overall ESP 
population, based on their original contract and current capacity (see 
Table above). According to HRA's December 2004 figures, an average of 
4,100 individuals are referred across the 26 sites each month, or close 
to 50,000 per year.
    ESP vendors are contracted to move people from welfare to work. At 
each ESP site, a combination of job readiness, job skills training, and 
job search assistance is offered to prepare individuals for and connect 
them to jobs; services are then provided to help participants retain 
jobs.
Finding 1: The ESP System has Failed to Meet its Primary Goal of 
        Connecting Welfare Recipients to Long-Term Employment
    While the primary goal of the ESP System is to move people into 
jobs and off of welfare, less than 1 in 10 welfare recipients referred 
to the ESP System are placed in jobs within six months. Within another 
six months, almost 1 in 3 of those individuals return to public 
assistance.
    The primary goal of the Human Resources Administration is moving 
people off of welfare and into employment. The ESP System is one of the 
strategies used for accomplishing this goal. ESP vendors are held 
accountable for both job placement and job retention. They receive 
their first payment when they place people into jobs, and subsequent 
payments as people retain those jobs for three and six months.
    Unfortunately, research findings show that the ESP System is doing 
an inadequate job of connecting welfare recipients to jobs and 
achieving retention within the six-month period vendors are allotted.
Client Outcomes
    Based on three-month average figures reported in HRA's December 
2004 VendorStat Reports:

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      Only 8 percent of those referred to the ESP System are 
placed in jobs within six months (see Figure below).
      Of those placed in jobs:
        35 percent still hold those jobs six months later.
        29 percent return to public assistance.
        36 percent remain unaccounted for.

Systemic Problems
    Research indicates that certain program dynamics contribute to the 
low placement and retention rates:

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      Conflicts with the Work Experience Program: Problem 
inherent in the Work Experience Program (WEP), as well as a lack of 
coordination between WEP and ESP Sites, impede program success. Some 
vendors criticized the Work Experience Program (WEP) for interfering 
with their ability to accomplish their programmatic goal of job 
placement. The client survey showed that 83 percent of ESP clients are 
engaged in WEP. Vendors spoke of challenges that emerged because 
clients were granted permission to leave their work assignments for 
interviews, and clients who were more loyal to WEP sites than to job 
searching. They also identified the false hopes of long-term employment 
in WEP assignments as discouraging some clients from looking for work.

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      Lack of a Strategic Approach to Workforce Development for 
Welfare Recipients: The absence of a strategic approach to workforce 
development for welfare recipients impairs program effectiveness. 
Clients spoke of job developers that lacked connections to good 
employers and pushed them toward jobs limited in scope and quality. 
Vendor interviews pointed to the challenges faced by job developers 
left to make connections with little city support. HRA-sponsored 
employment services are developed on a site-by-site basis and have no 
strategic linkage to labor market realities.
      No Coordination between HRA and the Department of Small 
Business Services (SBS): A lack of coordination between the city agency 
that focuses on linking workforce development to economic development, 
and the Human Resources Administration that services welfare recipients 
and the ESP System, was evident. Clients either knew nothing about SBS' 
One Stop Centers or criticized not being able to choose to use their 
services rather than those of their ESP. Vendors mentioned that their 
job developers and those of the One Stop Centers operated completely 
independently. ESP sites are at times marginalized from economic 
development initiatives that could offer jobs for their clients.
Finding 2: The ESP System Fails to Offer Individuals the Training and 
        Education Critical for Long-Term Self-Sufficiency
    Even though a lack of education and training was identified as a 
major barrier for a vast majority of ESP clients, only 18 percent of 
clients were able to access education and training programs; 1 in 3 
clients did not know that education and training might satisfy a 
portion of their work requirements and that vouchers were available to 
cover the costs of these programs.

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    Within the ESP program context, preparing individuals for work 
includes two key components: providing job readiness support on-site 
and connecting people to vocational training off-site when appropriate. 
Past studies have demonstrated that a programmatic mix of job search 
and adult basic education is more effective in promoting sustained 
employment than programs that focus exclusively on job search or work 
experience.\iii\ Unfortunately, research findings from this study show 
that most individuals are not being provided with the training and 
education they need to move toward self-sufficiency.
---------------------------------------------------------------------------
    \iii\ Gayle Hamilton, Moving People from Welfare to Work: Lessons 
from the National Evaluation of Welfare-to-Work Strategies (New York: 
MDRC, July 2002).
---------------------------------------------------------------------------
Client Access
    The representative client survey revealed high levels of 
educational challenges among ESP clients:

      43 percent of ESP clients have less than a high school 
diploma and 50 percent only have a high school diploma or GED.

    However, despite the fact that many ESP clients could benefit from 
education and training, the client survey also showed that few who want 
it are able to access it through the system:

      Only 18 percent of ESP clients were able to access 
vocational education and training to better prepare them for work.
      71 percent of those not participating in education and 
training said they would like to do so.

    Many clients did not know about their rights to education and 
training and funds to support them:

      39 percent were not told that attending Adult Basic 
Education and/or vocational education could partially or entirely 
satisfy their work requirements.
      36 percent did not know that vouchers were available to 
cover costs of such training.

    Certain vendors were more likely to inform clients about their 
rights to education and training than others (see Figure below).

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Systemic Problems

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    Research revealed two particular program design issues that seemed 
to discourage vendors from referring people to education and training:

      Limitations of the ITA Voucher System: Though there 
appears to be no limit on the availability of ITA Vouchers for client 
training, the slow and difficult process for obtaining them, as well as 
the lack of information regarding the variety of training programs that 
exist and the quality of them, appears to discourage vendors from 
encouraging client enrollment. Clients and vendors considered the 
application system for ITA Vouchers tedious, and the delay in approval 
for vouchers often leads to lost clients and/or lost interest. The fact 
that the processing of a client's voucher application is instantly 
canceled when a client receives a sanction is yet another reason why 
vendors hesitate to invest energy in assisting clients to apply for 
them. Additionally, vendors and clients alike criticized the 
prioritization of short-term training over quality training.
      Performance-Based Contracts Undermine Education and 
Training: The structure of the ESP contracts provides no incentive for 
connecting clients to education and training. With payment contingent 
on placement within six months, vendors with short-term cash flow 
concerns have more incentive to push participants into quick employment 
than to promote choices that might be better for clients in the long 
run.
Finding 3: The ESP System Does Not Support the Provision of Services 
        Needed by a Large Proportion of Individuals Referred to It
    According to the representative sample of clients we surveyed, over 
half (55 percent) had been through multiple HRA job readiness/job 
search programs. HRA VendorStat Reports confirmed that 92 percent of 
those referred to the ESP System do not have their needs met by it--
instead, clients are perpetually recycled through a system that fails 
to address their needs.
    The ESP System was designed under a work-first philosophy. Clients 
referred to it are considered ready to work, and the assumption is that 
the system simply needs to help connect them to jobs. The reality, 
however, appears quite different. Some clients never arrive, some 
arrive wrongly assessed, and some come with multiple barriers. 
Unfortunately, we found that the ESP System does not meet the real 
needs of large numbers of participants--and that the great majority of 
individuals find themselves going around and around in circles instead 
of heading forward on a path toward self-sufficiency and long-term 
employment.

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Client Status
    Based on figures from HRA's December 2004 VendorStat Reports, 8 
percent of those referred to the ESP System are placed in jobs. The 
large majority of those referred, however, never receive the services 
intended (see Figure on next page):

      30 percent of those referred to the ESPs each month Fail 
to Report.
      14 percent are sent back to HRA each month due to a wrong 
initial referral.
      46 percent end up in receipt of a Failure to Comply 
(FTC).

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    All of these individuals are taken off the roster of the ESP site, 
are made to report to an HRA Job Center to discuss their situation, and 
are then re-assigned to the same site or a different site (or program) 
to begin the process again. According to the client survey, 55 percent 
of those in the ESP system had already been through other HRA job 
readiness/job search programs. Not served by one, they were cycled on 
to the next.
Systemic Problems
    Research uncovered three particular program design problems that 
contribute to the continuous cycling of clients and the ineffectiveness 
in meeting their needs:

      Poor Assessment and Referral Processes: HRA's assessment 
and referral system fails to connect people to appropriate services. 
Assessments done at the SAP Sites prior to ESP referral are often 
either inadequate or are ignored at the next step along the line, 
leading to inappropriate referrals. Even if a thorough assessment is 
performed, ESP sites rarely gain full access to the assessment. ESP 
Sites must fill in and begin again. Since the assessment process was 
not supposed to be core to the ESP System, little has been done to 
develop it adequately. Vendors are each left to figure out the 
appropriate way to assess on their own, beyond HRA's standardized check 
list, and great variation exists in how thoroughly it is done. Nearly 
half (44 percent) of the random sample surveyed said they did not feel 
that the assessment effectively captured their background and 
interests, and whether or not the subsequent Employment Plan was linked 
to the assessment was in question.

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      High Propensity to Sanction: The ESP System focuses on 
sanctioning those that do not comply, rather than addressing barriers 
and working to engage client problems and issues. The system's work-
first prioritization over barrier removal is a likely contributing 
factor to the high rates of no-shows and FTCs. The system focuses on 
sanctioning those that do not comply, rather than figuring out the 
reasoning behind their non-compliance and working with people to help 
address their barriers and become engaged. While 77 percent of clients 
that identified barriers to employment said that workers at their ESP 
site are aware of the barriers they face, only 52 percent felt the ESP 
program is able to help them deal with the barriers. Vendors are quick 
to explain that they are discouraged from working with clients for the 
long amount of time often necessary to address barriers and are instead 
encouraged to sanction them. Clients spoke of their perpetual problems 
with being FTCed, or nearly FTCed. They often spoke of bad 
communication and bad record keeping, by HRA and the contracted 
programs, which led to unjust sanctioning.
      Contract Incentives Discourage Service Provision: 
Contract incentives contribute to the lack of provision of services 
critical to moving people off welfare and into work. While it is 
expected that ESPs will need to provide comprehensive services in order 
to achieve high levels of placement and retention, there are neither 
incentives nor additional resources provided to truly address the 
barriers that people face in finding and keeping jobs or to tackle 
problems underlying non-compliance. The incentives are structured in a 
way that encourages vendors to work with those easiest to place 
quickly, and leave behind those that need more support and more time 
for initial placement. Clients realize this and grow wary of a system 
that is failing to meet their needs.
CONCLUSION:
Systemic Failure and A Revolving Door
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    Based on the above findings, we conclude that the Employment 
Services and Placement (ESP) System has failed to achieve its goals of 
moving people from welfare to work, and instead maintains people in a 
continuous cycle--in and out of the doors of different HRA offices and 
programs--destined never to have their real needs addressed.
    The Employment Services and Placement (ESP) System emerges in the 
research as a program that fails to move people from welfare to work. 
Perhaps at one time, in a more robust economy and when there were more 
work-ready individuals in the system, it met the needs of individuals 
referred to it. However, this is not the context within which it 
currently operates. Our research finds that systemic problems cause the 
program to fail to meet the needs of those it currently is meant to 
service.
    These systemic problems include the following:

      NYC lacks a strategic coordinated workforce development 
approach for welfare recipients,
      WEP fails to prepare people for work and sets up a 
paradigm that discourages job searching or sends people in circles for 
non-compliance,
      The ITA voucher system is structured in a way that 
discourages enrollment in training,
      Education and training providers are neither monitored 
nor evaluated,
      HRA's assessment process fails to refer the right people 
to the right services,
      The welfare system prioritizes sanctioning of clients 
over addressing their barriers, and
      The contracting system rewards placement and retention 
without supporting working with those that face more challenges to 
employment.

    We recognize that a small percentage of individuals find success 
with this approach. However, we have found that the great majority seem 
stuck in a procedural maze--scrambling from one vendor to the next, 
from one set of services to another, but ultimately getting nowhere, 
except recycled into another employment program. Given the amount of 
federal, state, and local funding that is being spent on this system, 
we must ask if this is the best use of limited governmental resources. 
This criticism is magnified when one factors in the additional good 
will, energy, and countless hours of people power that is invested by 
government agencies and employees, the private sector, and community 
based organizations--not to mention the personal investment of hopes 
and aspirations that the clients themselves put into getting a job and 
off of welfare--we must question the efficacy of a system in which so 
many are invested, and yet produces so few results. Many vendors are 
doing what they can given the constraints under which they operate. 
However, a focus on designing a system wherein vendors can be more 
effective, and more clients can have their needs addressed, is 
critical. It is based on our findings, specifically the lack of results 
of the current system, that we put forward the following list of 
recommendations.

    MOVING FORWARD: Recommendations to Improve Employment Services for 
Welfare Recipients

    At the close of 2005, HRA's ESP contracts will come to an end after 
two, three-year cycles. HRA has just collected proposals from agencies 
interested in being contracted for its new employment services 
program--HRA Works!--which collapses three current employment services 
contracts into one. HRA deserves credit for the time and effort it has 
put into reflecting on what worked and what failed to work in their 
last contracting cycle as they structured their new RFP. However, they 
have not gone far enough.
    The time for correcting both the program design and the program 
contracting is now. This research points to a number of recommendations 
that will help get at the root of the programmatic challenges 
uncovered. For purposes of this Executive Summary, a few such 
recommendations are presented here. More information on these 
recommendations, as well as some additional ones, can be found at the 
end of this report.
    To meet the goal of connecting more welfare recipients to long-term 
employment, city government should:

    1.  Coordinate HRA and SBS in Crafting a Single Workforce 
Development Strategy

    One strategic approach should drive workforce development efforts 
for all of NYC's unemployed and underemployed. HRA and SBS should work 
together to develop a common analysis of the labor sector growth areas 
in the city and the pathways and programs individuals must use to 
advance within them.

    2.  Develop Career-Ladder Programs that Reflect Real Labor Market 
Needs

    Targeted training programs can prepare individuals for entry into 
and advancement within the economic sectors with the most potential for 
future growth. NYC should expand a number of initiatives that have 
begun to do this, broadening participation to include welfare 
recipients.

    3.  Create Industry and/or Occupation Employment Services Hubs for 
Welfare Recipients

    Career-oriented employment services hubs should be created in 
addition to the geographically based hubs that HRA is proposing for its 
next round of contracts. Staff at industry hubs could focus their 
employer connections and training knowledge on particular industries 
and occupations. Clients would benefit from more targeted placement 
assistance connected to their interests.
    To facilitate access to education and training among welfare 
recipients, city government should:

    4.  Eliminate Sanctions and FTCs as Barriers to ITA Voucher 
Applications

    Once a vendor helps a client apply for an ITA Voucher, it should 
not be bumped out of the system due to an FTC or sanction status. This 
discourages vendors from assisting clients with voucher applications 
and distances clients from the training they need to exit the system.

    5.  Monitor and Identify Effective Training Programs

    Clients will continue to be denied access to education and training 
if efforts are not made to better identify effective training programs 
and encourage vendors to place people in them. The city should conduct 
a centralized evaluation of approved sites and distribute results to 
vendors.

    6.  Add Payment Milestones that Encourage Placement in Training

    HRA should revise performance-based contracts to include incentives 
that encourage vendors to help people get training and education. Two 
additional milestones should be added to the contracts: one compensated 
milestone for placing a client in training, and one after the client's 
completion of it.
    To more adequately meet the needs of a diverse population seeking 
assistance, the city government and the Human Resources Administration 
should:

    7.  Develop an Assessment Process that is Broad in Scope

    The assessment process should include more than completion of a 
TABE Test and a check-box employment plan form. Efforts should be made 
to learn from more holistic techniques being utilized by some, gather 
information on additional ones, and support vendors in implementing new 
methods.

    8.  Establish a Separate Sanction Trouble-Shooting Program

    HRA should eliminate its current sanctioning approach, with its 
assumption of fault and a need for punishment. In its place, the agency 
should create a special unit (or provide adequate resources to vendors) 
to reach out to individuals that Fail to Comply, find out what prevents 
their compliance, and work with them toward reengagement.
    9.  Create Line Item Funds or Additional Milestones for Service 
Provision

    So that vendors can have funds to provide the intensive services 
needed by many clients, some line item funding is critical. 
Alternatively, the agency could set up additional payment milestones to 
reward assisting people with securing housing, setting up childcare 
arrangements, special referrals, etc.

    10.  Expand Paid Transitional Jobs into Other City Agencies

    For individuals lacking recent work experience, a short-term paid 
subsidized job opportunity can help propel them back into the 
workforce. The establishment of NYC's Parks Opportunity Program (POP) 
has replaced WEP and begun to fulfill this need. The program should be 
expanded into other city agencies to provide similar opportunities in a 
variety of occupations.

    11.  Create a Supported Work Program for the Hardest to Employ

    A supported work program provides intensive support and services to 
hard-to-employ individuals in an accepting work environment: on-site 
employment supervision, case management (addressing personal, family, 
and vocational needs) and job coaching. Resources should be invested 
into creating such a program for welfare recipients with the most 
barriers to employment.

    To ensure that we can really learn what works in moving people from 
welfare-to-work, city government should:

    12.  Contract an Outside Entity to Evaluate HRA Works

    With a new program set to kick off in October 2005, now is the 
perfect moment to initiate an evaluation. Learning more about program 
design and implementation at the vendor level, as well as what services 
work to produce what outcomes, could help HRA fine-tune the program 
along the way and to solicit better results.

                                  
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