Michigan, 20 years after “welfare reform”

It was 20 years ago, in 1996, that Bill Clinton signed the Personal Responsibility and Work Opportunity Reconciliation Act that transformed cash assistance from a federal entitlement program (meaning that all who meet the eligibility requirements receive a direct federal benefit) to a block grant through which states fund their own programs. The Family Independence Program (FIP) is Michigan’s cash assistance program that is funded by the block grant—Temporary Assistance for Needy Families (TANF).

Unlike Aid to Families with Dependent Children (AFDC), TANF gave states wide latitude to set their own eligibility levels and work requirements. It allowed states to use federal funds for other things besides cash assistance as long as the expenditure fit within four general purposes of TANF.

Advocates were concerned at the time that transferring cash assistance to the state level would lead to a “race to the bottom” in which states would spend as little money as possible on needy families and push them into low-wage jobs that would not help them leave poverty. Some even within the Clinton administration warned that it would actually increase poverty.

As preparations begin for the reauthorization of TANF, the national Center on Budget and Policy Priorities takes a look at the past 20 years and finds that “welfare reform” did not in fact help poor families in the way that it could have. Fewer families below the federal poverty line are receiving cash assistance and the benefits have eroded with inflation over time. Moreover, states in general have been spending only half of their TANF block grants on basic assistance, child care or work activities, with the other half going to other uses that fit within the four purposes of TANF (including supplanting state funding for popular programs with TANF funds).

blog 29_July_2016Immediately before the passage of the welfare reform legislation in 1996, 184,000 Michigan families received cash assistance and 88 families received benefits for every 100 families with children in poverty. In 2014, only 39,000 families in our state received cash assistance and the cash assistance-to-poverty ratio was only 14 to 100. By May 2016, the number of families receiving cash assistance fell even further, to 22,573 families.

Between 2001 and 2011, Michigan’s unemployment and poverty rates soared and Michigan had what was sometimes referred to as a one-state recession (Michigan led the nation in unemployment for four straight years). During that time, FIP caseloads remained flat overall and even decreased at some points, showing a serious inability to respond to very real need. Currently, a family must be at HALF the federal poverty line in order to begin receiving cash assistance through FIP.

Michigan’s monthly FIP benefit is also very low: only $492 per month for a family of three without any other income. A family of three can combine earnings with cash assistance only up to $1,183 a month, with benefits decreasing as the parent earns more money, but that still only brings the family to 74% of the poverty level.

Michigan also does not spend any of its TANF block grant on child care for families who are leaving cash assistance, making it difficult for such families to become economically self-sufficient. As a result, the child care subsidy is far lower than market rates, making it difficult for struggling families to find quality child care and putting their jobs (and perhaps their children) at risk.

Michigan can do much better with the $775 million it receives each year in federal TANF funds. While conversations go on at the national level about how to make TANF more effective in responding to need, Michigan has to have that conversation as well. A few good steps would be:

  • Increasing the cash assistance monthly benefit to a level that will bring families up to at least the federal poverty line if they are working full time.
  • Modify eligibility rules to enable more working families living in poverty to qualify for assistance.
  • Strengthen the child care subsidy to help working parents meet their children’s needs without risking losing their jobs.

— Peter Ruark

From Safety Net to Springboard: Using the Family Independence Program to Help More Parents Build Their Skills

Approximately 25,500 families in Michigan receive cash assistance through the Family Independence Program (FIP), including approximately 15,500 adult parents.1 Most parents receiving cash assistance are required to work in order to receive benefits. Due to the low household income limit for FIP eligibility, many families leave the program because parents earn too much to remain eligible. These parents often then find themselves stuck in low-paying, unskilled jobs that do not provide a secure economic future for their families and which cannot adequately cover costs such as child care.

Without in-demand occupational skills signified by a postsecondary credential such as a degree, certificate or license, it is difficult for FIP recipients to become economically self-sufficient. The Partnership, Accountability, Training, Hope (PATH) program, established in January 2013, encourages training as a strategy for achieving economic security, but federal restrictions prohibit the state from making full use of training opportunities for some FIP recipients. Because of Michigan’s high level of work participation, however, the state can implement several changes despite these limitations that would increase participants’ likelihood of success in training programs.2

Children who grow up in poverty are more likely to be poor as adults than those not raised in poverty, and the educational level of parents is an indicator of how far their children will go in education and skill building.3 For this reason, increasing the skills of FIP recipients is a sound, long-term two-generation strategy: by helping parents in the present, Michigan will help their children to become skilled adults, reducing their likelihood of being in poverty and needing public assistance in the future.

Background: Brief History and Structure of TANF

In 1996, Congress passed the Personal Responsibility and Work Opportunity Reconciliation Act (informally called welfare reform) that changed the structure of federally-funded cash assistance in the United States. This act replaced the federal cash assistance program Aid to Families with Dependent Children (AFDC) with the Temporary Assistance to Needy Families (TANF) block grant to states, through which each state would set up its own program within broad guidelines. While federal AFDC money to states was based on the number of cases the state had, going up or down with respective caseload increases and decreases, TANF set each state’s annual block grant according to the state’s 1994 AFDC spending levels. Nineteen years later, Congress has still not raised the amount of the block grant to each state. Michigan continues to receive $775 million per year, the same amount it received in 1997.

The two central features of TANF that marked a major change from AFDC are the establishment of a 60-month lifetime limit and stricter federal work requirements. States may not use TANF funds for families that include an adult who has received federal cash assistance for 60 months (consecutive or nonconsecutive) since the implementation of TANF. States are free to use their own funds to continue benefits to such families and to set their own time limits for those benefits. States are allowed to set time limits on federal benefits that are shorter than the 60-month limit, and many do. Michigan’s lifetime limit for receiving FIP assistance, established in 2006 and made stricter in 2011, is 48 months, a full year less than the federal amount. The federal limit does provide some flexibility to states through the hardship exemption, which allows a state to exempt up to 20% of its cases from the 60-month limit for reasons of hardship as defined by the state.

The other major change with TANF is the federal work requirement. A single parent with at least one child under 6 years old must participate in approved work activities for 20 hours per week; if the single parent’s children are between the ages of 6 and 17, the parent must participate in 30 hours per week of work activities. For two-parent families, the combined work hours must total at least 35 hours per week (55 hours per week if a family receives a federally-funded child care subsidy).

The 1996 law set forth 12 categories of work activities that can count toward the work requirement (some of the categories were further defined when TANF was reauthorized in 2005). Nine of these 12 categories are core activities that can count toward any number of hours of participation, and many recipients fulfill their entire work requirement through one core activity, usually unsubsi-dized employment. Participation in the three secondary activities can count only if the individual also participates in core activities for at least 20 hours per week (single parents) or 30 hours per week (two-parent families).

The allowable core and secondary activities are shown in Figure 1.

The percent of a state’s cash assistance caseload that is meeting the work requirements is known as the work participation rate (WPR). Each state has a WPR target of 50%, but that target can be adjusted by applying a caseload reduction credit—subtracting a percentage point from the work participation target for each percentage point that the state reduced its caseload since the baseline year of 2005 (Figure 2). Prior to 2006, the baseline year was 1995, and due to the large reduction following welfare reform, many states had an adjusted target of 0%. TANF imposes penalties on states whose WPR falls short of their adjusted target.

TANF policy states that no more than 30% of the families that a state counts toward its federal work rates may do so through vocational educational training or, for parents under age 20, school attendance or education directly related to employment. Most years, only 1-3% of Michigan’s caseload meeting the requirements consists of parents under 20 finishing high school, so this is not a concern when trying to bring up the number and percentage of recipients participating in vocational educational training.

The Importance of Postsecondary Credentials for FIP Recipients

Nearly all FIP recipients have no education beyond high school. About 25% do not have a high school diploma compared with 10% of Michigan’s general population, while about 75% have only a high school diploma (no postsecondary education) compared to less than 30% of Michigan’s general population. A very small percentage (1-3% most years) has some level of education beyond high school, though likely many or most of those did not finish a postsecondary program or attain a credential (Figure 3).

In past decades, helping a parent go from welfare to family-supporting work with only a high school diploma would not be a problem. As recently as the 1980s, a Michigan individual could find gainful employment (often in the manufacturing sector) immediately after high school graduation and begin a lifelong career. Since then, many jobs have been moved out of the country or automated, and many of the remaining entry-level jobs that lead to a career track require a higher skill level than before. As a result, workers with only a high school diploma are likely to remain stuck in low-paying work with little chance of promotion; real wages for Michigan workers with only a high school diploma have fallen from $36,234 in 1979 to $28,288 in 2014 (Figure 4).4

Of Michigan’s 969,565 working families, 12% have incomes below the poverty threshold (considered poor) and 32% have incomes below two times the poverty threshold (considered low income).5 Of the working families that are below the poverty threshold, 44% do not have a parent with any education beyond high school, and it is safe to assume that there are also many working poor families in which a parent enrolled in at least one postsecondary class but did not finish the program or receive a credential.6 Even some working families above the “low income” level experience difficulty meeting basic needs.7

For most people, becoming employed in jobs with a career track and livable wages requires some level of postsecondary training leading to a credential—a two- or four-year college degree, a certificate or a license. Such training pays off; from 2005 to 2012, Michigan workers with an associate degree earned an average of $8,139 per year more than those with only a high school diploma.8

Many cash assistance recipients are in a very economically precarious position. The FIP monthly grant will bring a family with no other income to less than one-third of the federal poverty threshold, though the grant is supplemented by Food Assistance Program benefits, which bring the percentage a little bit higher. When a parent begins to earn enough to bring his or her family to 75% of the poverty level, their family is no longer eligible for cash assistance and is likely to remain poor despite the parent working full time. If a recipient can become skilled and earn a credential before losing assistance, the chances of needing public assistance in the future will be greatly reduced and the family’s economic well-being more likely to improve.

As Figure 5 shows, each year through Fiscal Year 2012, Michigan has consistently had far below 30% of its FIP recipients who fulfill the federal work requirements do so through vocational education. If this pattern has continued since the launch of PATH in January 2013 (data is not yet available for fiscal years after 2012), then Michigan is not making full use of its ability to use FIP as a springboard to economic security.

In addition to underutilizing its ability to have up to 30% of its FIP population in education and training, Michigan also currently does not track the academic and work success of those who leave cash assistance. It is developing a P-20 educational data system, however, that tracks the educational progress of all students in all public (and some private) K-12 schools and postsecondary institutions, in adult education and in the workforce development organizations.9 If this data system would aggregate welfare recipients and those who have left assistance and track their progress through these systems, Michigan would be able to compile data to show what strategies work to help those on public assistance become more economically self-sufficient.


Because Michigan’s work participation rate (WPR) is so far above its target, the state can afford to have more of its recipients not meeting the federal work requirements and not counted toward the rate. There are a number of ways that Michigan can take advantage of this flexibility in order to help recipients attain postsecondary credentials and move into employment that pays a livable wage.10

Actively promote the vocational educational training option to recipients who are likely to succeed. Many FIP recipients are not ready for vocational educational training due to complicated family situations, learning disabilities or other barriers, or a lack of desire. However, for the many who would benefit and are considered likely to persist and complete a program, local Michigan Department of Health and Human Services (DHHS) offices should actively promote this option and facilitate its participants’ success. If in a future year higher percentages of FIP recipients successfully participate in vocational training, Michigan can make use of the flexibility provided by its high WPR to lift the 30% cap on counting this activity rather than turn away recipients who wish to participate.

Allow FIP recipients who successfully complete one year of a two-year vocational educational training program to complete their second year without additional work requirements. Because of the importance of attaining a postsecondary credential to increase success in the labor market, FIP policies should be improved to ensure that recipients who have made significant progress in their training programs can continue to study and receive cash assistance seamlessly, without new work requirements added on. These recipients will not be able to be counted as fulfilling work requirements in Michigan’s WPR for those 12 months.

Apply months of vocational educational training against a recipient’s 12-month limit only when the recipient completes enough hours in that category to satisfy the entire month’s federal work requirements. There is a 12-month limit on a recipient fulfilling all monthly work requirement hours through vocational educational training. Participation in this activity that exceeds the 12-month limitation may not be counted in the state’s work participation rate. According to federal TANF policy, if a recipient participates in vocational educational training even just one day in a given month and the state counts that activity in its WPR for the month, that month must count against the recipient’s 12-month limit for vocational education.

Recipients in vocational training programs may have some months in which they do not have enough vocational training hours to fulfill federal work requirements. In these months, Michigan should not count those hours as vocational educational training. If the recipient has enough combined hours in vocational educational training AND other countable activities to fulfill the work requirement in a given month, then the vocational program should be counted as “job skills training,” which does not have a time limit. If the recipient does not have enough countable work hours in any activity to fulfill work requirements, then that recipient cannot be counted in the state’s WPR for that month anyway and the hours spent in vocational educational training should not be documented as such against the recipient’s 12-month time limit.

Allow FIP recipients over 20 years old who have not completed high school to do so by taking adult education classes without additional work requirements, provided they take a minimum number of classes concurrently and maintain satisfactory academic performance. Michigan would not be able to count these cases toward its WPR. However, adult education is a crucial link to postsecondary education for low-skilled parents, and the longer the time needed to complete adult education classes and pass the General Educational Development (GED) exam, the more likely such parents will drop out. Allowing the parent to “speed up” the process by taking more than one class at a time with no other requirements makes it more likely that the parent will continue education into the postsecondary level. This is especially important for parents who need to take Adult Basic Education (ABE) classes before GED classes, as the longer time required in adult education increases the likelihood that they will drop out before completion.11

Allow FIP recipients who are participating in adult education or vocational training programs and are close to exhausting their 48-month lifetime limit to receive an additional year of FIP. Although the state has imposed a 48-month/four-year lifetime limit on families receiving FIP, the federal lifetime limit for supporting families with cash assistance through TANF is five years. This enables Michigan to continue giving assistance to parents who have not yet finished their education and training. Adult education students who are meeting their work requirements could continue to count toward the WPR, as would vocational educational training participants who have not exceeded the 12-month limit. (Extending FIP for these families beyond 48 months can only be done if the Legislature modifies Public Act 131 of 2011.)

Allow English as a Second Language (ESL) to count as a core or secondary activity. Although TANF allows other forms of adult education (ABE and GED classes) to count toward work requirements, it does not allow states to count time that recipients spend in ESL. Such recipients must learn English in addition to participating in their required weekly work hours. As the flexibility provided by Michigan’s high WPR allows, the state should permit recipients who are making satisfactory progress in ESL classes to count class and study time toward their weekly work requirements.

Use the statewide P-20 education system to measure the workforce success of those who leave cash assistance, with and without training. It is very difficult to track and measure the economic well-being of those who leave cash assistance in Michigan. In the past, the responsible state agency would send out voluntary surveys to former recipients that would have a very low response rate. Today, however, the state has a P-20 data system in place that measures education and workforce success and the system is being expanded. While preserving recipient privacy, Michigan should link this system with the DHHS data system in order to track parents when they leave FIP, measuring the success of those who have participated in education and training while receiving FIP compared to those who have not. This will help the state know what kind of programs and policies have been successful at facilitating the transition from cash assistance to family-supporting wages and job security.12


Cash assistance is a necessary safety net for parents who have barriers to finding or maintaining a job that enables them to meet their family’s needs, and the PATH program provides a three-week screening process to pinpoint such barriers. For many recipients, the barriers include a low level of marketable occupational skills, and a subset of these recipients lack basic skills in at least one academic area that are needed to attain occupational skills through postsecondary training. Without such skills, parents often remain either unemployed or stuck in low-paying jobs that do not pull them out of poverty or help them meet their children’s needs.

In keeping with its name, the Family Independence Program ought to use every available means to enable cash assistance recipients to acquire credentials leading to gainful employment and economic security. While not all recipients are able to do this, for the ones who are, FIP can be not only a temporary safety net but a springboard to skills, career and economic security—for the parents now and their children when they become adults.

skilling up michigan



  1. Michigan Department of Health and Human Services, Trend Report of Key Program Statistics, September 2015.
  2. The PATH program ended the prior program for work participation known as JET (Jobs, Education and Training). One of the main features of PATH is that it requires a 21-day application eligibility period in which recipients are screened for work readiness and barriers.
  3. Bassett, Meegan D., Considering Two Generation Strategies in the States, Working Poor Families Project, Summer 2014.
  4. Economic Policy Institute analysis of Current Population Survey data.
  5. Working Poor Families Project data generated by Population Reference Bureau from the American Community Survey, 2013.
  6. Working Poor Families Project, ibid.
  7. For more on the level of income that Michigan families must have in order to meet their basic needs without public or charitable assistance, see the Michigan League for Public Policy’s Making Ends Meet in Michigan: A Basic Needs Income Level for Family Well-Being, March 2014.
  8. Economic Policy Institute, ibid.
  9. P-20 is shorthand for an integrated educational system that extends from preschool to higher education and the workforce. For more on Michigan’s P-20 data collection system, go to: http://www.michigan.gov/cepi/0,4546,7-113-56472—,00.html.
  10. For further discussion on many of these recommendations, see Lower-Basch, Elizabeth, Amy Ellen Duke-Benfield and Lavanya Mohan, Ensuring Full Credit Under TANF’s Work Participation Rate, Center for Law and Social Policy, March 2014.
  11. Adult Basic Education (ABE) classes are those that bring the student to a ninth grade level in a given academic area, while General Educational Development (GED) classes bring students to a high school graduation level. For the very low-skilled, ABE classes are often a necessary prerequisite to GED classes and the necessity of completing them before GED classes prolongs their time in adult education, increasing the likelihood of dropping out.
  12. For more information on this subject, see Michigan League for Public Policy, The Key Ingredient: Data is Crucial to Building Michigan’s Workforce System, July 2011.





Many kids stuck in poverty without solutions

Contact: Judy Putnam or Jane Zehnder-Merrell, 517.487.5436

Kids Count in Mich. ranks 82 counties on child well-being

LANSING, Mich. – Too many kids in Michigan remain mired in poverty at a time when policymakers have reduced help for struggling families, according to the Kids Count in Michigan Data Book 2015 released today.

Three measures of economic conditions worsened over the trend period with nearly one in every four children living in an impoverished household, a 35 percent increase in child poverty over six years. The trend period measured from 2006 to 2012 or 2013, depending on the availability of data.


Walking the walk with infant mortality

Factors that may drive Michigan’s tragically high infant mortality rate include stress, unemployment, poverty and neighborhood safety in addition to what might be thought of as the more traditional reasons, such as lack of healthcare or poor safe sleep practices, according to a new report from the Michigan Department of Community Health. The report takes a broad look at why Michigan’s rate is so high and in particular why an African American infant in Michigan is 2.6 more times likely to die before reaching the child’s first birthday than a white infant. (more…)

Ten steps to boost Michigan’s economy

new report by the League outlines 10 steps Michigan must take to improve its economy, refuting the myth that tax cuts are a shortcut to economic prosperity. Included in the report are strategies for investing in the services and infrastructure needed to create jobs and fuel economic growth, as well as tax changes that modernize and strengthen the state’s revenue system.

It is an agenda for long-term economic prosperity that includes investments in education from early childhood through higher education, access to the health and mental health services needed for a healthy workforce, basic income security for those who cannot work or find jobs, and support for the community services businesses and consumers rely on. (more…)

Minimum wage — not just your summer job

Long gone are the days when minimum-wage jobs, such as those in food service, were the province of suburban teenagers starting their working lives. A great majority (85%) of low-wage workers in Michigan are at least 20 years old, and 82% have a high school degree or higher. Nearly a quarter of them are also parents supporting children according to a report by the Michigan League for Public Policy.

These facts suggest a reconsideration of the minimum wage, not as pocket change for teenagers, but as wages for adults who are responsible for themselves, and perhaps for young children. (more…)

Moving in the wrong direction

The latest U.S. Census Bureau data confirms what we all suspected. While there have been improvements in the economy, it has not been enough to float all boats, and state poverty rates, especially for children, remain 25% to 30% above pre-recession levels.

Certainly there have been cuts in state and local services in Michigan that affected low-income families with children, thwarting their opportunities to share in the American dream by earning enough through hard work to move into the middle class. Deep cuts in basic income assistance have forced more children into extreme poverty, exposing them to homelessness and hunger, and creating barriers to academic success. A failure to invest in child care for low-income families has resulted in fewer parents having the care they need to secure and retain jobs that support their children. (more…)

Detroit’s woes, solutions don’t stop at city limits

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The July 18 bankruptcy filing for Detroit was shocking, though in many ways, it wasn’t a surprise at all. Detroit’s struggles have been evident for years. Still, as a native Detroiter, my heart broke a little that day.

One thing that is clear in this multilayered controversy: Detroit’s problems and solutions do not stop at the city limits. We all have a stake in this — not only in Michigan, but across the country as Detroit may be the canary in the coalmine for other regions.

What should be the response from policymakers? First and foremost, let’s remember that this is about people. Stronger state and federal strategies that invest in children and families, reduce poverty and grow jobs will be good for all. And we have lots of room for improvement. (more…)

Drug testing fails the test

Last week, Utah released preliminary data on their year-old drug testing policy for recipients of cash assistance. As Utah is my home state and as the Michigan Legislature is considering drug testing proposals, I was very interested in seeing the results.

Utah was one of the first states to implement a suspicion-based drug testing policy for cash assistance – one in which all applicants are required to be screened for substance abuse issues and then must take a drug test if the screening indicates an issue may exist. Here is how the numbers came out: 4,425 people were screened for drug use, 394 were then required to take a drug test and nine people ended up testing positive for drugs. That’s right, nine. The cost to the state of Utah to identify the 0.2% of those screened that ended up testing positive for drugs? $26,391

Oklahoma had a similar experience. In the first four months that they implemented their suspicion-based policy – about 1,300 people were screened, 340 of those were referred to drug testing and 29 people were denied benefits as a result of it all – 2%. The cost for the four months? $74,000 (more…)

The 2014 State Budget: Some Opportunities Missed

 Full report in PDF


The 2014 state budget, as passed recently by the Michigan Legislature, includes some positive investments in Michigan’s future, but also misses the opportunity to improve economic security and health for many Michigan residents. The Legislature completed its work on the $48.7 billion budget in record time, meeting a self-imposed deadline of early June.

The final budget consists of two omnibus budgets, including: (1) the Education Omnibus Budget ($15.4 billion), which funds School Aid ($13.4 billion), community colleges ($336 million), and higher education ($1.4 billion); and (2) the General Omnibus Budget ($33.3 billion), that funds all other state departments and services, including Community Health ($15.4 billion), Human Services ($6 billion), and Transportation ($3.6 billion). Both budgets have been presented to the governor for his signature. In Michigan, the governor also has the power to make line item vetoes.

Sadly, in formulating the state budget for next year, state lawmakers turned their backs on more than $1.5 billion in 100% federal funding available to expand Medicaid eligibility to very low-income parents and childless adults up to 133% of the federal poverty level.

This expansion would reduce the number of uninsured adults by 46%, and result in savings in the state’s General Fund of $206 million in Fiscal Year 2014 alone by allowing the state to use federal funds to provide comprehensive services to a population that is currently eligible for very limited state funded health benefits. Cumulative savings to the state’s General Fund would grow to $1.2 billion through 2020.

It is not too late, however, to accept the federal funds available to Michigan to expand Medicaid eligibility, and legislative discussions continue. House Republicans proposed legislation, H.B. 4714, that initially would have partially expanded Medicaid eligibility to nondisabled adults (ages 21-65) and imposed a 48-month time limit.

Now redrafted, the bill modifies the 48-month time limit, and instead requires those with incomes between 100% and 133% of poverty who are eligible under the expansion to purchase private insurance through the healthcare marketplace, or increase cost sharing or out-of-pocket expenses after 48 months. Some relief may be available if enrollees adopt healthy behaviors or assist the state in detecting medical fraud and abuse.

The final Fiscal Year 2014 budget also included unexpected funds based on more favorable revenue projections adopted at the May 15th Revenue Estimating Conference. The new revenue consensus by state fiscal experts assumes that Michigan will have an additional $702 million in fiscal years 2013 and 2014, including $579 million in state General Funds, and $123 million in the School Aid Fund.

With these unexpected revenues, along with the potential infusion of federal Medicaid funds, the Michigan Legislature had the opportunity to build a 2014 budget that begins to reverse some of the damaging policy decisions made during the worst of the Great Recession to balance the budget and provide business tax cuts. With this budget, lawmakers had the opportunity to reinvest in the educational and human services that have been shown to improve economic competitiveness.

While some progress was made, including a significant expansion in funding for Michigan’s state-funded preschool program, an expansion of dental care to low-income children, and a small restoration of K-12 per-pupil allocations, the opportunity was largely missed to reverse tax and policy changes that disproportionately hurt low- and moderate-income working families, children and seniors.


Michigan tax policies hurt working families and thwart economic growth: Because Michigan’s Constitution requires that the state budget be balanced each year, tax policy decisions drive budget decision-making. In the long run, Michigan will not be able to consistently make the types of investments needed to create a competitive workforce and build the community infrastructure, services and amenities needed to attract and retain businesses until it updates its outdated tax system to ensure sufficient revenues in good economic times and bad.

The tax changes adopted in the last several years have unfortunately moved Michigan in the wrong direction by making the state’s tax system more regressive and creating additional barriers to employment for low-wage workers. More significantly, by relieving businesses of the obligation to pay their fair share for the community services they rely on, recent tax changes further jeopardized the basic public services needed to grow Michigan’s economy, including basic human services, K-12 education, access to higher education and vital community services.

In 2011, the Michigan Legislature adopted an unprecedented tax shift that reduced taxes on businesses by 83%, while increasing taxes on individuals by 23%. As part of that shift:

Tax credits for many low- or moderate-income workers and families were cut or eliminated.

  • Michigan’s Earned Income Tax Credit, an effective anti-poverty tool that helps hard-working families whose incomes put them and their children below or moderately above the federal poverty line was cut by 70%.
  • The Homestead Property Tax Credit was restricted for some low-income families and reduced for others.
  • The child deduction of $600 per child for children ages 18 and under was eliminated.
  • Credits for city income taxes and college tuition and fees were eliminated.

Tax credits for many charitable contributions were eliminated, including contributions to:

  • Michigan college foundations, universities, public broadcast stations, and public libraries and state museums.
  • Homeless shelters, food banks and community foundation.
  • Medical savings accounts.
  • Individual or Family Development Accounts.

Taxes on pensioners were increased.

  • The full impact of the 2011 tax changes on individual taxpayers and low-income workers and their families is just being felt this year, as taxes for 2012 are completed.
  • EITC payments, which totaled $353.5 million statewide before the Great Tax Shift, are expected to fall to $106 million for the 2012 tax year. As a result, an additional 9,000 children are expected to fall into poverty, as their parents lose the struggle to cover work-related costs and make ends meet.
  • Donations to community foundations are down 28% statewide, with the Community Foundation for Southeast Michigan experiencing a 40% drop in donations to endowments for the 185 nonprofits they partner with.
  • In the face of rising poverty and restricted access to basic public income and food assistance, donations to homeless shelters and food banks are falling. For example, the Food Bank Council of Michigan reports that donations of $200 to food banks have dropped by 29%, while $400 donations have fallen by 47%.

During the debates over the Fiscal Year 2014 budget, lawmakers had an opportunity to reverse some of the 2011 tax changes that hurt low- and moderate-income workers, seniors and charitable organizations. Despite unexpected revenues of more than $700 million, and a transfer of funds into the state’s “rainy day” fund, the Legislature failed to do so.

The Fiscal Year 2014 budget fails to compensate for years of disinvestment in basic public services. While the Fiscal Year 2014 budget includes some increases for state programs and services, it fails to compensate for more than a decade of cuts and the erosion of purchasing power. Michigan’s economic problems began before the national Great Recession, and deepened dramatically during that period. Recent projections show that Michigan’s economy is inching forward, but it would be an exaggeration to say it is rebounding, and many Michigan families are grappling with higher taxes, fewer services, and lower incomes.

The rationale for the Great Tax Shift of 2011 was that the combination of reducing business taxes and increasing individual income taxes—with a net loss of revenue—would improve the state’s economy and spur job growth. The evidence doesn’t support that policy goal. Research shows that corporate income tax cuts are unlikely to have a strong positive effect on a state’s rate of economic growth or create many new jobs.

In fact, raising taxes on the working poor creates a clear drag on the state’s economy, in part because lower-income people spend nearly all the money they make, mainly on necessities, so for every dollar they lose due to a tax increase, total spending drops by around a dollar. Further, tax changes and cuts in public services that reduce available income and supports for working families and increase poverty have a negative effect on children’s health, school achievement, and ultimately their success in the workforce.

Over the last decade, Michigan’s outdated tax structure failed to produce the revenues needed to maintain basic services and invest in the human and other capital needed to grow the state’s economy. While total state spending (state General Fund and state restricted funds) rose by 7% between 2003 and 2013, with the exception of the Departments of Community Health and Corrections, every other major state department and service suffered cuts—even before calculating the impact of a 21% increase in the Detroit Consumer Price Index over that decade.

Instead of fixing the state’s revenue problems, lawmakers chose to make deep cuts in programs for low-income and working families, public schools, institutions of higher learning, and vital community services. To ensure Michigan’s competitive advantage, it is critical that the state begin to reverse those failing policies and reinvest in its most precious resource, its human capital. While much has been said about Michigan as a “comeback” state, the truth is that tax and budget decisions have forced hard-working, low-income families in Michigan to make sacrifices, and closed them off from the benefits of the “comeback.”


Economic Security and Work:

More very poor children will be denied access to basic income assistance. The Fiscal Year 2014 budget reduces funding for Family Independence Program by $41 million to a total of $214.3 million to reflect continued reduction in caseloads—projecting caseloads will fall from 53,298 in the current year (appropriated) to 45,710 in Fiscal Year 2014—a 14% reduction.

  • FIP caseloads have been declining dramatically in recent years, in large part the result of policy decisions, including the adoption in 2011 of changes in lifetime limits for assistance. Between 2010 and the projections for 2014, caseloads will have fallen from 79,233 to 45,710—a drop of 42% in just five fiscal years.
  • Approximately seven of every 10 FIP recipients are children, and 60% of those children are under the age of 9.
  • To be eligible for FIP, the average family of three must have an annual income of less than $9,800, and the maximum benefit is $492 per month, representing less than one-third of the poverty line. 

Approximately  30,000 very poor children will have their fall clothing allowance restored. The Michigan Legislature included $2.9 million in the Fiscal Year 2014 budget to restore the clothing allowance provided to children in child-only FIP families in the 2013-14 school year. The Snyder Administration chose to eliminate the clothing allowance this fall—the only direct client benefit cut as a result of federal sequestration.

  • 30,000 children will have their clothing allowance restored in school year 2013-14, but because of earlier policy changes limiting the benefit to FIP cases that do not include adults, 120,000 children who had previously received a fall clothing allowance will still be left behind.
  • The fall clothing allowance is an important support for low-income children, particularly in light of the failure to raise FIP grants.

The number of Michigan residents with access to basic food assistance will continue to decline: The final budget reduces funding for the Food Assistance program (formerly called the Food Stamp program) by $683.7 million in recognition of the loss of temporary federal funds, as well as caseload reductions—largely based on changes in FAP eligibility, including the adoption of an asset test. The Legislature assumes that caseloads will fall from 1.1 million cases appropriated this year, to 876,650 in 2014—a 19.4% reduction. The actual average monthly FAP caseload through April of this year was much lower than appropriated at 912,339.

  • Between 2004 and 2011, FAP caseloads grew by 135%. In 2011, Michigan adopted an asset limit for FAP, limiting access to food assistance and creating an unreasonable hardship for some families, as well as turning away federal funds available to assist low-income families. Since that time, FAP caseloads have been declining.
  • Over 70% of FAP recipients receive no other state cash assistance, and the average monthly benefit for a two-person household is $267.

Low-income working families will continue to struggle after losing significant income with the 70% cut in the state’s Earned Income Tax Credit: In 2011,the Michigan Legislature slashed the state Earned Income Tax Credit from 20% of the federal EITC to just 6%. The state EITC is a refundable tax credit for working families, designed to promote and reward work and offset other taxes paid by low wage workers that consume a higher percentage of their total income. Despite unexpected new state revenues, the Legislature did not recommend EITC restorations.

  • The EITC is a proven tool in the fight against poverty. Last year, at 20% of the federal credit, the state EITC kept 14,000 children from falling into poverty. This year, at just 6%, only 5,000 children will escape poverty, leaving another 9,000 behind.
  • The EITC serves as a temporary income supplement for most families—three out of five use the credit for just 1 or 2 years while they get back on their feet.
  • The credit has been shown to increase employment, reduce the need for public assistance, boost local economies, and benefit businesses by helping low-wage workers cover work-related costs such as transportation and child care.  

Healthy Workers, Families and Children:

Thousands of currently uninsured Michigan residents may not have access to healthcare that is fully federally funded: The Legislature rejected, as part of the budget process, the governor’s recommendation to accept Michigan’s share of federal funds to expand healthcare coverage to 320,000 low-income parents and individuals through the Medicaid programs. A separate bill to expand eligibility for Medicaid is currently under discussion.

  • More than 1.9 million Michigan residents (19.4%) now rely on Medicaid for their basic health services.
  • Because Medicaid expansion would be 100% federally funded, it would result in savings to the state of more than $200 million in Fiscal Year 2014 alone, allowing the state to use federal funds to provide comprehensive services to a very low-income population that is currently eligible for very limited state funded health benefits.
  • The Legislature’s decision to date denies coverage for uninsured Michigan residents for both Medicaid health and mental health services. Michigan’s mental health system is underfunded, and without this expansion more people will be forced to go without needed services, be added to waiting lists for services, or receive services through the corrections system. Funding for community mental health services for persons not eligible for Medicaid was reduced by nearly $54 million between fiscal years 2010 and 2012.
  • By giving more women access to healthcare before and between pregnancies, Medicaid expansion would improve both the preconception health of mothers and birth outcomes, including a reduction in infant deaths. Approximately 60% of women eligible for Medicaid deliveries report that their pregnancies are unintended, compared with 27% of privately insured women.
  • Medicaid expansion could increase economic activity and decrease the state’s long-term healthcare liabilities—with federal funds covering 100% of the costs through 2016, phasing down to 90% in 2020 and beyond.
  • The Department of Community Health estimates that Medicaid expansion would cut Michigan’s uncompensated care costs—caused by those who must turn to emergency rooms for their care — by $320 million through 2022.

Approximately  70,500 more low-income Michigan children will have access to dental care: The Legislature ultimately approved the governor’s proposal to add $11.6 million to expand the Healthy Kids Dental program to cover an additional 70,500 children in three Michigan counties—part of a multi-year plan to cover all children in the state.

  • Approximately 70,500 children in Ingham, Ottawa and Washtenaw counties will have access to preventive oral health care.
  • Currently, more than 440,000 children are covered by the program in 75 of Michigan’s 83 counties. Many of the state’s most populated areas are not yet covered, including Oakland, Macomb, and Wayne counties—with a disproportionate impact on children of color.
  • Access to preventive dental care reduces dental emergencies and related costs. Children enrolled in Healthy Kids Dental are 60% more likely to receive preventive dental care by age 3, and 25% less likely to have dental emergencies.

Michigan infants, and particularly infants of color, will continue to die unnecessarily: While the Michigan Legislature adopted—at a reduced level of $2 million—the governor’s recommendation for new funding to begin to implement Michigan’s infant mortality reduction plan, this increase is more than offset by lawmakers’ current decision to reject Medicaid expansion to uninsured Michigan residents, including women whose infants would be born healthier if adequate preconception care was available.

  • Despite being a key indicator on the governor’s dashboard, Michigan’s infant mortality rates continue to be higher than most states. Michigan ranks 37th among the states in infant mortality, with death rates for African American infants that are more than two-and-one-half times higher than white babies.
  • Michigan’s efforts to reduce infant mortality remain underfunded. The plan includes regional perinatal care, initiatives to reduce medically unnecessary deliveries before 39 weeks, the promotion of safe sleep practices for infants, and expanded home visiting programs.

Additional funding will be available to prevent toxic lead poisoning: The final budget includes $1.25 million in state General Funds to remove lead hazards from homes in areas with high incidences of lead-poisoned children—funding that was not included in the governor’s budget. Last year, the Michigan Legislature approved an additional $2 million for Michigan’s lead abatement program, known as Healthy Homes, for total funding of $4.9 million. The governor vetoed the expansion, and the program is funded at $2.9 million this year.

  • Lead has a particularly devastating effect on young children when it can compromise the developing central nervous system and cause irreversible damage to cognitive capacity and behavior.
  • Of the nearly 69,000 children targeted for lead poisoning testing (who are insured by Medicaid or live in one of 14 targeted communities), 57% were tested in 2012. Testing for lead poisoning peaked in 2010, and has decreased slightly since. Nearly 150,000 children under the age of 6 were tested in 2012.
  • Prevention works. While, the number of children with confirmed elevated lead blood levels has declined dramatically, some areas of the state still have very high rates of lead poisoning. The city of Detroit had over half the state’s lead poisoning cases in 2012; the second highest total was in Grand Rapids.

A Top-Notch Cradle to Career Education:

More low-income 4-year-olds will benefit from early childhood education: The final Fiscal Year 2014 budget includes the governor’s proposal to increase funding for Michigan’s Great Start Readiness Program by $65 million, but reserved $25 million of the increase in a newly created GSRP reserve fund which could only be tapped through legislative action if there is sufficient need for the preschool slots. Total funding for the state-funded preschool program is increased from $109.3 million in the current year to $174.3 million in Fiscal Year 2014, opening up approximately 16,000 new half-day slots for 4-year-olds.

The Legislature made several changes to GSRP policy, including: (1) raising the payment for a half-day slot from $3,400 to $3,625; (2) eliminating the current competitive GSRP program that provides funds to private sector providers, instead requiring Intermediate School Districts to establish a local process to contract out at least 30% of their slots to public or nonprofit community organizations or for profit businesses; (3) targeting GSRP funds to the lowest income children by lowering the income cap, requiring that at least 90% of children served are from families with incomes below 250% of poverty and the lowest income children are served first; (4) requiring GSRP providers to have quality ratings of at least three out of five start through Great Start to Quality, Michigan’s quality rating system; and (5) requiring GSRP providers to use a sliding fee tuition scale for children who do not meet the income eligibility requirements.

  • Evaluations of the GSRP show that participants are more likely to be ready when they enter kindergarten and pass 4th grade MEAP tests. In addition, fewer GSRP participants were retained in grade and more graduated on time from high school.
  • A growing number of economists and business leaders, including heads of Fortune 500 companies, the Federal Reserve Bank, and Nobel Prize-winning economists agree that early childhood programs can generate government savings and produce returns that exceed public investments, with savings accruing from lower costs related to such public services as special and remedial education, high school graduation rates, lower unemployment, higher earnings, and reductions in the need for public assistance.

Michigan public schools will continue to struggle to balance their budgets: Although the Legislature, in contrast to the governor, included a partial restoration of the per-pupil foundation allowance for public schools, the increase was not enough to make up for the cuts already suffered by school districts. The Legislature increased the maximum (basic) foundation allowance by $30 to $8,049, and the minimum foundation by $60 to $7,026. The final budget also includes $6 million to ensure that all districts receive a minimum increase of $5 per pupil.

The Legislature also approved $36 million (up from the governor’s recommendation of $24 million) for equity payments to districts with foundation allowances of less than $7,076. The payment would be the lesser of $50 per pupil or the difference between the district’s Fiscal Year 2014 foundation allowance and $7,076.

The final budget retains funding for best practices grants at the current year level of $80 million, with districts eligible for $52 per pupil if they meet seven out of eight best practices. The governor recommended that best practices grants be reduced by 70% to $25 million. Lawmakers also increased performance funding for districts from $30 million to $46.4 million, to reflect the number of districts that are expected to be eligible next year.

  • In 2011 and 2012, Michigan public schools suffered total cuts of $470 per pupil in their foundation allowances, and this budget fails to offset those cuts.
  • In the decade between fiscal years 2004 and 2014, total state spending through the School Aid Fund increased approximately 4%, while the Detroit Consumer Price Index increased nearly 21%.
  • Lawmakers once again chose to transfer funds from the School Aid Fund, which has traditionally been used to fund K-12 education, to universities and community colleges. A total of approximately $400 million will be transferred in Fiscal Year 2014. Transferred School Aid Fund dollars now account for almost 60% of total funding for Michigan’s communities colleges, and 15% of university funding.

Many low-income youths and adults will not be able to afford a college education—the ticket to long-term economic security: Lawmakers included an increase of 7% (from $43.8 million to $47 million) in the Fiscal Year 2014 budget for the state’s Tuition Incentive Program, which provides financial aid to students who are Medicaid-eligible. While sorely needed, this relatively small increase is unlikely to substantially change Michigan’s ranking of 40th in the country in needs-based grants, or its placement last in the Midwest.

  • Over the last 10 years, states across the country increased investments in need-based grants by an average of 84%. Michigan, running counter to the national trend, decreased state funding by 20%—one of only two Midwest states to cut needs-based grant funding during that period.
  • In 2010-11, Michigan invested the least in grant dollars per student of all Midwestern states. The state spent 4.5% of its higher education budget on state grants in that year, while Pennsylvania, Indiana and Illinois all spent higher than the national average of 12.5%.
  • In 2010-11, only 14% of Michigan’s full-time students received some kind of grant aid, ranking the state second to lowest in the Midwest and 40th in the nation in the number of students receiving aid.

Without incentives for universities and community colleges to focus on the success of low-income and nontraditional students, many will continue to find barriers to the completion of postsecondary education: For Fiscal Year 2014, the Michigan Legislature again failed to incorporate performance standards that reward universities and community colleges for helping at-risk students. The final budget includes a 2% increase for both universities ($24.9 million) and community colleges ($5.8 million), with funding allocated based on performance metrics. In the current year budget, lawmakers included additional funding for universities and community colleges that meet specific performance standards, however only one of those performance standards—tuition restraint—addresses the unique needs of low-income and nontraditional students, including those needing remediation.

For Fiscal Year 2014, the performance measures for universities will remain largely the same, including tuition restraint; degree completions overall, as well as in key areas such as science, technology, engineering, mathematics and health; six-year graduation rates; research and development expenditures; and institutional support as a percentage of core expenditures. In the final budget however, the Legislature strengthened incentives for tuition restraint by making it a condition for receiving any performance funding and by lowering the tuition increase limit from 4% to 3.75%.

For community colleges, the metrics are also largely unchanged, and include degree completions, student contact hours, and administrative costs as a portion of total spending. For Fiscal Year 2014, lawmakers rejected a new metric proposed by the governor for job placements in the skilled trades.

  • Michigan’s economic growth depends on a skilled workforce, and the performance funding system put in place this year for public universities and community colleges does not adequately focus on the success of low-income students or those needing remediation.
  • The most recent data available show that 36.5% of community college students and 13% of university students in Michigan were enrolled in at least one developmental education course—at a cost to both the students and the institution.
  • Michigan’s decision to appropriate a portion of its higher education and community college funding using performance metrics provides an opportunity to address student success in the budget process and reward institutions that are successful in helping low-income and nontraditional students.

Low-income students or those needing remediation face more barriers to educational access and success, are more expensive to serve, and more likely to drop out. If there are no financial incentives for institutions to devote additional resources to this population, they could be viewed as a liability in terms of the other standards, including graduation rates.

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