While it would be easy to dismiss Mississippi as an aberration--after all, the state ranks last or near last among all states in per capita income, percent of children in poverty, infant mortality rate and child deathrate--its response to the welfare law is far from unique. Due to a combination of factors, including a strong economy and the decline in the welfare rolls brought on by the harsh new policies, many states have found themselves with sizable welfare budget surpluses--but according to recent figures, more than half failed to use the full amounts of their federal welfare grants last year, leaving billions of unspent dollars piling up in state treasuries (a total of $6 billion by one estimate). The worst offenders include West Virginia (one of the poorest states in the nation, which left $72 million, 65 percent of its annual grant, unspent), New Jersey ($170 million), New York ($335 million), Colorado ($61 million) and Louisiana ($90 million, more than half the state's total of $168 million). The money can roll over into the next year, but future federal allocations are tied to this spending, as well as to overall state spending levels, which are also dropping.

The states' failure to spend their welfare money isn't illegal, but it vividly shows what's wrong with giving them so much latitude. For years, states argued that they knew best how to spend the money to lift their residents out of poverty. Now that the Feds have given them the autonomy they asked for, they've slashed the welfare rolls but hoarded the money that could actually help the working poor. (Wisconsin went even further, using part of its welfare surplus to fund tax cuts for the middle class.) In early August at an assembly of the nation's governors in St. Louis, Clinton urged states to spend their leftover welfare money on childcare and education for poor children and to invest more in outreach for underused programs like Medicaid, CHIP and food stamps. The President also announced that he would be dispatching federal officials to all fifty states to make sure people aren't being illegally excluded from health programs. But because of the law he endorsed, the most the Administration can do is nudge states to mend their ways. Meanwhile, before Congressional Republicans had the bright idea of fiddling with the earned-income tax credit to balance the budget, they floated the notion of asking states to return their surplus welfare cash to the federal government.

In the past few months, reports on the welfare "leavers" have begun to emerge, painting a bleak portrait of increasing hardship for the country's poor--and not just in the regional pockets described by Clinton on his recent poverty tour. A study by the Center on Budget and Policy Priorities found that between 1995 and 1997, the poorest fifth of single-parent families suffered nearly a 7 percent loss in income, or $580 per family. Among the poorest of the poor, the loss was even more pronounced. And most of the decline can be attributed to cuts in government benefits--in 1995, for instance, 88 percent of poor children were getting food stamps, but by 1998 food stamps were reaching only 70 percent of poor kids. Moreover, a National Governors' Association survey found that 40-50 percent of those who left the welfare rolls did not have a job, and "most of the jobs [held by former recipients] pay between $5.50 and $7 an hour...not enough to raise a family out of poverty." Extreme poverty is growing among children, especially those in female-headed households, according to a study released by the Children's Defense Fund and the National Coalition for the Homeless. In a study of the poor in ten states by Network, the National Catholic Social Justice Lobby, 24 percent of those surveyed said they couldn't provide enough food for their children, 46 percent said they were eating less because they couldn't afford food and 36 percent said they had to forgo needed medical care.

According to Jack Tweedie, director of the Children and Families Program at the National Conference of State Legislatures, the welfare rolls dropped faster than states anticipated, and states have not taken advantage of the flexibility they now have to address poverty issues. "States are reluctant to set up new programs if two years down the line they're going to have to shut the programs down--and take the political fallout--or use state money to keep them alive," Tweedie explains.

Activists are challenging such inertia with organizing campaigns focused on investing surplus welfare funds in programs for the working poor. In New York, unions, research nonprofits and welfare advocacy groups formed the Campaign for the Empire State Jobs Program, which called for using $85 million of the welfare surplus to provide subsidized jobs with living wages and childcare benefits to former welfare recipients--with assurances that no permanent workers would be displaced. The state agreed to start a $12 million pilot project based on the proposal, a significant victory that nonetheless leaves the bulk of the surplus unused. Likewise, activists in Pennsylvania and Wisconsin have succeeded in wresting a small amount of the welfare-to-work funds away from states and putting it toward programs for former recipients. In Massachusetts, Parents United for Child Care lobbied successfully for entitlements to childcare assistance on a sliding scale for working-poor families. State-level earned-income tax credits, which subsidize the working poor, have passed in several states, and campaigns are under way to provide transportation assistance and extended job training (in place of the "work first" approach) to those leaving welfare. Perhaps the most important breakthrough has been the expansion of Medicaid to cover working-poor parents in Rhode Island, Connecticut, Wisconsin, California, Ohio and Washington, DC.

Together, these efforts, says Center for Community Change's Bhargava, are "seeds of a national progressive agenda around poverty issues," which may play out in the debate over the reauthorization of the law in 2002. But there is a long way to go. Three years ago the "reformers" declared that welfare was a broken system that needed to be wiped out before it could be improved. Sadly, the same might be said with far greater justice of the replacement they came up with. Unless the federal government unties its own hands, the battle for welfare justice will remain centered in the states, where activists must struggle to bring reason and fairness to a system that has abandoned both.

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