Selected Analyses of Families Experiences with CAP. The New York State Child Assistance Program. Executive Summary

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1 Selected Analyses of Families Experiences with CAP Cambridge, MA Lexington, MA Hadley, MA Bethesda, MD Washington, DC Chicago, IL Cairo, Egypt Johannesburg, South Africa The New York State Child Assistance Program Executive Summary Contract No. C December 1996 Prepared for New York State Department of Social Services Division of Temporary Assistance 40 North Pearl Street Albany, New York Prepared by William L. Hamilton Nancy R. Burstein August J. Baker John Blomquist Stefanie Gluckman

2 SUMMARY OF FINDINGS The New York Child Assistance Program (CAP) is a welfare reform initiative developed by the New York State Department of Social Services. CAP was implemented on a test basis in a limited number of counties beginning in This report describes results over five years in the three counties where CAP operated within a rigorous experimental design. The Child Assistance Program CAP is a voluntary alternative to AFDC. It is open to single-parent AFDC families that include a custodial parent (usually the mother) and at least one child who is covered by a valid court order for child support from the non-custodial parent. Families who enroll in CAP transfer out of AFDC. They are subject to CAP rules and the CAP benefit formula, and their cases are handled by CAP workers located in separate CAP offices. CAP is designed to motivate AFDC recipients to take steps toward financial selfsufficiency. It contains explicit incentives for clients to work and to seek child support orders: Work incentive: a low tax rate on earnings. AFDC recipients who work have their benefits reduced by nearly one dollar for each dollar that they earn, after an initial period. CAP recipients' benefits are reduced by just 10 cents per dollar for the first several hundred dollars of earnings, and 67 cents thereafter. The favorable earnings disregard is coupled with a base grant that is about onethird lower than the AFDC base level. Thus a client with no earnings would receive a smaller CAP grant than AFDC grant. AFDC recipients are expected to transfer to CAP only when their earnings reach the threshold at which their CAP grant would exceed their AFDC grant. The threshold is typically about $350 per month, roughly equivalent to half-time work at the minimum wage. Child support incentive: a benefit formula tied to the number of children with child support orders. The family receives a base amount for the first child with an order, and a fixed additional amount for each other child with an order. Children without orders are not covered by CAP and may not receive AFDC benefits. CAP also has several features designed to strengthen these central incentives by encouraging recipients to take responsibility for moving themselves toward self-sufficiency. i

3 These include providing food stamp benefits in cash rather than separate coupons, allowing recipients to accrue savings without becoming ineligible, and eliminating the option of having the government pay part of the benefit directly to landlords or other vendors. CAP deliberately projects a non-welfare image for example by having separate, professional-looking office space to encourage participants to think of CAP as a step toward financial independence. CAP case managers work with individual clients to motivate them and to help them overcome obstacles to self-sufficiency. Case managers spend considerable time encouraging AFDC recipients to get the jobs or support orders they need to enroll in CAP. They also work with active CAP participants, helping with problems that threaten the clients' ability to keep working and helping them move toward better-paying or more secure employment. To allow this intensive case management, CAP workers have smaller caseloads than AFDC workers. The Evaluation The evaluation focuses on the CAP experience in three counties: Monroe (Rochester), Niagara (Niagara Falls), and Suffolk (Long Island). CAP began operations on a trial basis in these counties in April The evaluation followed a group of 4,287 families in the three counties for a period of five years. The evaluation collected a great deal of data on these families over the five years, focusing especially on their employment and earnings, their child support status, and the amount and type of public assistance benefits they received. In each county, a sample of single-parent AFDC recipients was randomly assigned to either a treatment or a control group. Those in the control group remained subject to the normal AFDC rules and procedures. Treatment group families had the opportunity to participate in CAP if they qualified and were interested. Over the course of the five years, approximately one-sixth of the treatment group families participated in CAP at some time. The evaluation judges CAP's effectiveness mainly by comparing the entire treatment group (including those who never participated in CAP) with the entire control group (see Exhibit 1). This comparison has two important features. First, it measures effects that occur before CAP enrollment, as AFDC recipients take jobs or seek support orders in hopes of qualifying for CAP, as well as effects that occur during and after families begin receiving CAP benefits. Second, it measures CAP's average effect for the entire single-parent AFDC caseload, averaging many people who were not affected by CAP together with a smaller number who were. ii

4 Voluntary programs such as CAP are sometimes evaluated by randomly assigning individuals at the time they volunteer to participate. This would permit a direct comparison between participants and non-participants. It would not, however, measure any changes in behavior that occur before individuals volunteer, or among individuals who alter their behavior and subsequently decide not to volunteer. Further, it would measure impacts for a special subset of the AFDC caseload rather than the entire caseload. For these reasons, the experimental sample for the CAP demonstration represents the full single-parent caseload rather than the volunteer group only. Exhibit 1 FULL TREATMENT GROUP IS COMPARED TO FULL CONTROL GROUP Evaluation findings based on comparing the full treatment and control groups are presented in the main evaluation report. 1 The supplementary analyses presented in this report are not necessarily based on comparing the full treatment and control groups, and therefore must be interpreted with some caution. Most of the analyses fall into one of the following categories: Treatment-control comparisons for subgroups defined at sample entry. Examples are subgroups defined by the client's age or number of children in the month of selection for the sample. Analyses of such groups are conceptually identical to those presented in the main evaluation report, but they are based on smaller sample sizes. Statistically significant treatment-control differences can be 1 William L. Hamilton et al., The New York State Child Assistance Program: Five Year Impacts, Costs, and Benefits, Cambridge, MA: Abt Associates Inc., iii

5 interpreted as CAP effects, but smaller samples require larger differences in order to be statistically significant. Treatment-control comparisons for subgroups defined after sample entry. Some analyses define subgroups on the basis of characteristics measured sometime after clients entered the sample, such as whether they were employed at the end of the fifth year. The problem with these subgroups is that CAP itself may influence membership in the subgroup (by causing more people to be employed, for example). This means that treatment-control differences may reflect some combination of the effect of CAP and the differing composition of the subgroups. Comparisons of CAP participants and non-participants within the treatment group. These comparisons are useful in characterizing the kinds of people who choose to enroll or not enroll in CAP and the kinds of experience they have. Such comparisons cannot be interpreted as showing how clients changed their behavior in response to CAP. Findings of the Impact and Cost-Benefit Evaluation The main evaluation findings are presented in full elsewhere. 2 Those findings are summarized briefly below as a backdrop to the supplementary analyses presented in this report. They indiciate that CAP had the following effects: More employment and earnings. Treatment group members earned 20 percent more over the five years than control group members, on average. Less public assistance. Treatment group members received 4 percent less than control group members in cash assistance and food stamp benefits over the five years. Treatment group members also received less Medicaid. More child support orders. On average during the five years, treatment group families had 4 percent more child support orders than control group families. Higher administrative cost. CAP was somewhat more expensive to administer than AFDC. Average administrative expenditures for cash assistance were 7 percent higher for treatment than control group families over the five years. Net savings to taxpayers. Reductions in public assistance benefits far exceeded the increase in administrative costs. These factors, plus estimated tax revenues, led to net government savings over the five years amounting to $2,366 per household in the treatment group. Savings for the three counties examined are estimated at $50 million in the six years following CAP implementation. 2 Hamilton et al., iv

6 These findings indicate that CAP is one of the most cost-effective welfare reform strategies that has been evaluated with a rigorous, random-assignment methodology. Supplementary Analyses: CAP Impact on Subgroups Previous analysis found that CAP generated a statistically significant increase in the fiveyear total earnings of the treatment group, and a significant reduction in five-year total public assistance payments. In order to determine whether those impacts tended to occur for particular types of clients, the analysis examined seven complementary pairs of subgroups, or 14 subgroups in all. All subgroups experienced positive (though often not statistically significant) CAP impacts. Treatment group earnings exceeded control group earnings for all subgroups, by margins ranging from 9 to 39 percent. Public assistance payments savings of 3 to 6 percent occurred for nine of the 14 groups, but three groups had essentially zero savings. Very positive results were observed for three groups of special policy interest: clients who had their first child before age 20; clients already on AFDC for at least two years at sample entry; and clients with children less than three years old at sample entry. The first two types of AFDC cases have historically shown patterns of long-term dependency. The third AFDC clients with very young children is often exempted from programs aimed at increasing labor force participation. The three groups showed significant earnings impacts ranging from 24 to 39 percent, and all had above-average reductions in public assistance payments. Lesser impacts occurred where smaller behavioral changes might be anticipated. Clients who already had recent employment experience or complete child support orders when they entered the sample could qualify for CAP with fewer behavioral changes than other groups. Clients who had been on AFDC less than two years at sample entry are more likely to be short-term cases, who would leave welfare soon even without CAP. CAP did not generate as much behavioral change for these three groups as for others. The three groups therefore show more modest gains in earnings and little or no reduction in public assistance payments. CAP participation did not exactly correspond with CAP impact. The clients whose prior situation made it easier for them to qualify for CAP those with recent work experience or all children covered by support orders had comparatively high participation rates but below-average impacts. There is evidence that some clients who did not participate may have been influenced by CAP. Some clients lacking support orders may have taken jobs in response to the CAP v

7 incentives, but left welfare before obtaining the orders that would have allowed them to enroll in CAP. Employment Patterns Moving AFDC recipients into stable employment is a major objective not only of CAP, but of most welfare reform initiatives across the country. Relatively little information exists, however, on the long-term employment patterns of AFDC recipients especially after they leave welfare or how the welfare reform initiatives influence those patterns. The five-year scope of the CAP evaluation provides a window onto some aspects of those employment patterns. The employment patterns of control group clients indicate that employment is a challenge for AFDC recipients. The pattern contains the following elements: About two thirds of clients in the control group had some earned income during the five years. About half were employed at the end of the period. Among control group members who were employed at some point, the typical (median) client took almost three years after sample entry to become employed. Three-quarters of the employed clients work 30 or more hours weekly, and the average wage is about $7.40 per hour. Between one-third and one-half of the clients have such fringe benefits as available health insurance, paid holidays, paid vacation, paid sick time, and retirement benefits. The typical employment spell lasted no more than two calendar quarters, or four to six months. After becoming unemployed, the typical client went five calendar quarters without earned income, regaining employment in the sixth quarter (16th to 18th month). CAP generally appears to strengthen clients' attachment to the labor market. Although many of the comparisons are only suggestive, treatment group members generally have somewhat more favorable patterns than the control group. Compared to the control group, treatment group members: are more likely to be working at a given point in time; work about the same number of hours for about the same wage, but are more likely to have fringe benefits; and become employed slightly sooner, stay employed slightly longer, and regain employment slightly more quickly. Although clients who enroll in CAP are much more strongly attached to the labor market, even their experience points up the challenge. The analysis cannot determine whether families that enrolled in CAP were more successful in vi

8 employment because of CAP or whether families that were destined to be more successful chose CAP. In any event, even among this comparatively successful group: The typical client became employed more than six months after sample entry (in the third quarter). Wage and hours patterns were similar to those for the control group, but fringe benefits were considerably more common. The typical employment spell lasted just three quarters (seven to nine months). After becoming unemployed, the typical client regained employment after two quarters (in the seventh to ninth month). Possible Secondary Effects of CAP CAP is principally designed to motivate AFDC clients to move toward stable employment, to secure needed child support orders, and thereby to become less dependent on public assistance. Because CAP generated significant positive results in all of these areas, it is reasonable to ask whether these primary effects might have led to beneficial secondary effects as well. Analysis specifically looked at indicators of asset accumulation, of changing family composition, and of child development and behavior. In general, the analysis yields hints that positive secondary effects may occur, but provides no conclusive evidence. More specifically: AFDC recipients acquired very limited financial resources over the five years. At the end of the period, only about one-third had a vehicle, and fewer than onequarter had checking accounts or savings accounts. CAP may have led to some small increases in asset acquisition. The percentage of treatment group families with each type of asset was one to two percentage points higher than the control group, but the differences are not statistically significant. CAP may have led to a small reduction in birth rates. Somewhat more than onethird of control group clients reported having a child during the five years. The rate for treatment group clients was about two percentage points lower, but the difference is not statistically significant. There is no evidence that CAP led to the formation of two-adult households. At the end of five years, the proportion of families with two adults differed by less than half a percentage point in the treatment and control groups. vii

9 Patterns of Exit from CAP welfare rolls. CAP is designed to be a stepping stone that AFDC recipients can use to leave the Although much of its impact on earnings and public assistance payments may occur while clients are still on welfare, as they move from AFDC to CAP, the program ultimately succeeds when clients are able to exit from cash assistance and avoid return. The analysis therefore examines the overall patterns of exit and return, but focuses mainly on the paths taken by CAP participants. CAP appears to reduce recidivism once recipients leave welfare. Comparing all treatment group members who exited cash assistance (whether through CAP or AFDC) to all control group exiters, treatment group exiters were less likely to return quickly. Among control group exiters, 40 percent received assistance again within two years. Only 33 percent of treatment group exiters returned within two years. AFDC clients who enrolled in CAP and then left CAP to go off assistance most often had successful exits. Among this group: average earnings in the year following CAP exit were about $11,000; and 82 percent remained off welfare for at least one year, and 75 percent for two years or more. Clients who left CAP to go off assistance showed strong pre-exit employment patterns. Compared to clients who transferred from CAP back to AFDC, this group: had somewhat stronger employment and education backgrounds when they entered the sample; built up to a higher earnings level before enrolling in CAP; stayed on CAP longer before exiting; saw more earnings growth while on CAP; and typically had a new job, raise, promotion, or increase in hours shortly before leaving CAP. Clients who left assistance from CAP and then stayed off assistance had especially strong employment and education backgrounds. Among those who exited CAP to go off assistance, most stayed off welfare for a year or more. Those clients who returned to the rolls within a year, however, were distinguished by less education and less employment experience at sample entry than the longerterm exiters. Clients who transferred from CAP back to AFDC had weaker employment backgrounds and negative employment or health events. Compared to the clients viii

10 who left CAP to go off cash assistance (regardless of whether they returned), this group: had less education and job experience at sample entry; achieved somewhat lower earnings levels when they enrolled in CAP (although still well above the minimum threshold); did not experience substantial earnings growth while on CAP; often experienced a job loss or cutback in hours (about half), although some quit voluntarily to enter education or training; often (about half) had a personal health problem, a pregnancy or childbirth, or a problem with a child's health shortly before leaving CAP; and had lower average earnings in their last month on CAP than their first, and much lower earnings in their first month back on AFDC. The findings presented above are more important for the details they provide about particular facets of CAP than for overall conclusions about the program. Taken together, however, they re-emphasize the importance of employment as a path off welfare and the potential for wide-ranging family improvements for those who find the path. The findings also show, however, that employment is a substantial challenge for the welfare population. CAP can help a wide variety of people move ahead, but employment remains a major challenge for many families even with the CAP incentive. ix