A Comprehensive Urban Policy: How to Fix Welfare and Revitalize America's Inner Cities

(Archived document, may contain errors)

January 18, IW3

A COWREHENSIVE URBAN POLICY: HOW TO FIX WELFARE AND REVITALIZE AMERIC.KS INNER CITIES

Let's make we&re a second chance, not a way of 4fe. I want to erase the stigma ofwerarefor good by restwing a sbnpk. dignpedprincipk: no one who can work can may on welfareforever. Its time to honor and reward people who work hard and play by the ruld .... that MOMS pravOng opporninio. demandng r&Wmibility, and ending weFare as we blow it.

DfflClinton, 0nR*wuftWarr(CW==mpdSndovwnmQ

EXECUTIVE SUMMARY Your own comments during the campaign, President-elect Clinton, show that you recognize Mm most Americans-that die welfare system is a failure. It has been 25 years since the urban riots of the 1960s led President Lyndon Johnson to ask Congress for a massive expan- sion of urban welfare programs. But do 1992 rim in Los Angeles show die problems of die inner city have not been solved. IrWIted, in most respects, they have become worse. This is not because of a lack of government spending. In 1990, federal, stale, and local gov- nents spent $226 billion on assistance programs for low-income persons." This figure in- cludes only spending on programs for die poor and near-poor, it excludes middle-class entitlements such as Social Security and Medicare. Adjusting for inflation, total welfin spend- ing in 1990 was five times die level of spending in do mid-1960s, when theWar on Poverty began. In fact, total welfare spending on die War on Poverty since 1964 has been $3.5 trillion (in constant 1990 dda'n)-an amount, after adjusting for inflation, greater than the entire cost of World War IL

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2 How to Fix Welfare and Revitalize America's Inner Cities

The plight of America's inner cities is powerful testimony not only to government failure in welfare, but also to the deterioration of the criminal justice and education systems. The welfare problem is not merely the very high level of spending; it is that nearly all welfare expenditure is replete with perverse incentives that promote self-destructive behavior among the poor. Simi- larly, America's criminal justice system has failed utterly in its basic task of removing danger- ous repeat felons from the inner-city communities where they victimize the law-abiding poor at a terrifying rate. And while it is bad enough that America's public school system has arrested the intellectual development of middle-class youth, as evidenced by virtually every measure of academic performance, the real catastrophe is that in many cases it has left the children of the urban poor without even basic reading and math skills. Complicating your attempts to reform welfare and urban policy is that too many self-pro- claimed minority cultural and political leaders, as well as urban power brokers, have watched the alarming decline of moral values and family structure in the inner city with apparent indif- ference. When the War on Poverty began in the mid- 1960s, roughly one out of four black chil- dren was born out of wedlock. Today the figure is two out of three. Similar trends have occurred among low-income whites. But too many powerful political and community leaders not only remain silent about these problems, they actively criticize reformers who dam to com- ment on them. As President, you must take the lead to reform the anti-poverty system, and thus give sub- stance to your bold campaign promises. Specifically, there are five actions you must take to begin to address the disastrous condition of America's inner cities:

Action 1: Take steps that will achieve a comprehensive reform of the welfare system. Americans increasingly recognize that the current welfare system is harming the poor rather than helping them. Welfare has undermined the family and promoted long-term dependency. Your Administration can fulfill your solemn pledge to transform welfare from a one-way hand- out into a system of mutual obligation. As Ben Wattenberg, your vocal supporter at the Ameri- can Enterprise Institute, has observed, welfare reform is the "read my lips" pledge of the Clinton Administration. You must deliver on it. You must achieve legislation that will require responsible behavior from welfare recipients as a condition of receiving benefits. You must also win changes in the law that will convert welfare from a system which rewards non-work and single parenthood into one which rewards work and marriage. The most important factor in changing the welfare incentive system is to require most able-bodied welfare recipients to work in exchange for the benefits they receive.

Action 2: Improve Inner-city education by supporting real school choice. Your Administration must also improve the education of low-income children by promoting true competition in education. This means nothing less than empowering low-income parents, through vouchers, to choose the schools their children will attend. Choice must not be re- stricted to public schools only. In many inner cities, the only schools that provide an acceptable level of education are private. The rich and powerful already have school choice; the poor and powerless do not. If you and Al Gore and Jesse Jackson all can decide to send your children to private schools, a poor parent should have the same choice. Including religious schools in any education choice plan is also crucial. The reason: The em- pirical evidence supports the role of religious institutions in improving the quality of life of inner-city children. The inner-city church is the primary bulwark in the fight against crime, pov- erty, and despair. Religious belief is the strongest single factor in determining whether or not a poor child will finish school and escape from poverty. An urban policy which ignores the role of religious institutions is doomed to failure.

How to Fix Welfare and Revitalize America's Inner Cities 3

Action 3: Create jobs by signing enterprise zone legislation. By removing high taxes and excess government regulation, enterprise zones can create, jobs and economic opportunity in designated urban areas. The majority of states have enacted such zones, and they have proved successful. 2 The effectiveness of urban enterprise zones can be greatly expanded if the federal government joins state and local governments in offering regula- tory and tax relief within the targeted areas. 1,egislation was passed by both houses of Congress last year, as part of a huge tax bill, and was vetoed by George Bush. Ask for the enterprise zone provisions to be strengthened and sent to you as a separate bin, and then sign it.

Action 4: Launch a War on Crime. America's crime rate is alarming. And the most frequent victims of crime are black and poor. High crime rates also drive business and jobs out of the inner city. But this problem can be con- trolled if your Administration has the will to do it. The majority of serious crime is committed by no more than three percent of the male popula- tion. But the criminal justice system today operates like a revolving door, arresting chronic criminals repeatedly, and quickly dumping them back into urban communities where they prey on their poor victims again and again. The key to restoring public safety in urban America is to incarcerate these persistent crimi- nals and keep them off the streets. To do this, you should commit your Administration to en- couraging a significant expansion of prison capacity at the state and local level. The reward: Repeat offenders can be locked away where they can do no further harm, to the community.

Action 5: Lead a campaign to restore moral values and personal responsibility within the Inner-chy communities. The plight of the inner-city poor is rooted in underclass behaviors: illegitimacy, non-work, crime, and drugs. These behaviors are in turn molded by the prevailing values and norms of low-income communities. As President, you must raise to national prominence a "new brea' of community leaders who will be heard and respected by the inner-city poor. These leaders must promote moral renewal within urban communities, restoring a sense of respect to study and learning, the dignity of all labor, and the sanctity of marriage. They must stress the broad opportunities available to Americans of all races and the enduring link between personal values and behavior and success or failure in our society. The problems of the inner city are severe and the task before you is great. However, if you adhere to your campaign promise to break sharply with liberal policies of the past, the potential for improving the lives of disadvantaged Americans is also great.

HOW WELFARE HAS HARMED THE POOR Welfare spending by federal, state, and local governments reached a record high of $226 bil- lion in 1990, the latest year for which complete data are available. This amounted to 4.1 percent of America's gross national product. This is the same proportion that was spent during the Great Depression of the 1930s, when a quarter of the labor force was unemployed. Total wel- fare spending is now more than twice the level needed to raise the incomes of all poor Ameri- cans above the official poverty income thresholds.

2 Cal F. Horowitz. Ph.D., New Life for Federal Enterprise Zone Legislation," Heritage Foundation Backgrounder No. 833, June 4,1991, p. 3.

4 How to Fix Welfam and Revitalize America's Inner Cities

The reason that Americans are so critical of the welfare system is not just its very high costs, but also the accurate perception that welfare actually has harmed the very poor people it is in- tended to help. To understand why this is so, and how to reform the system, one must begin with an under- standing of two separate concepts of poverty: "material poverty" and "behavioral poverty." Ma- terial poverty means, in the simplest sense, having a family income below the official poverty income threshold, which was $13,942 for a family of four in 199 1. To the ordinary American, to say someone is "in poverty" implies that he is malnourished, poorly clothed, or lives in filthy, dilapidated, and overcrowded housing. In reality, there is little material poverty in the U.S., at least in the sense generally understood by the publid Many of your advisors no doubt will tell you that poverty is widespread. But as they tell you this, you must maintain a historical perspective. Remember that in 1990, after adjusting for in- flation, the per capita expenditures of the one-fifth of the U.S. population with thelowest in- come exceeded the per capita income of the median American household in 1960. Beware also of claims of widespread hunger and malnutrition among the poor. There is little or no poverty-induced malnutrition in the U.S. Persons defined by the U.S. government as "pooe' have almost the same average levV of consumption of protein, vitamins, and other nutd- ents as persons in the upper middle class. Children living in "poverty" today, far from being malnourished, actually grow up to be one inch taller and ten pougds heavier than the average child of the same age in the general population in the late 1950s. Ile principal nutrition-re- lated problem facing poor persons in the United States today is not "hungef!--it is obesity. Re- markably, the poor in the U.S. have a higher rate of obesity than do members of other socioeconomic groups. Likewise, you must resist liberal propaganda that America's poor are generally ill-housed. "Poor"Americans have more qousing space and are less likely to be overcrowded than the aver- age citizen in Western Europe. Nearly all of the American poor live in decent housing that is reasonably well-maintained. In fact, nearly 40 percer of the households defined as "poor" by the U.S. government actually own their own homes. While few of today's poor are malnourished or ill-clothed, many suffer from what might be called poverty of the spirit, a "behavioral poverty." Behavioral poverty refers to a breakdown in the values and conduct which lead to the formation of healthy families and communities, stable personalities, and self-sufficiency. It incorporates a cluster of social pathologies, including: eroded work ethic and dependency, a lack of educational aspiration and achievement, the inabil- ity or unwillingness to control one's children, increased single parenthood and illegitimacy, criminal activity, and drug and alcohol abuse. While material poverty may be rare in the United States, behavioral poverty is entrenched and growing.

3 Robert Rector, "How the Poor Really Live: Lessons forWelfare Reform," Heritage Foundation Backgrounder No. 875, January 31,1992. 4 Robert Rector, Kate Walsh O'Beirne, and Michael L McLaughlin, "How Poor me America's Poor?"Heritage Foundation Backgrounder No. 791, September 21, 1990, p. 2. 5 Robert Rector, "Food Fight How Hungry Are America's Children?". Policy Review, Fall 1991, pp. 38-43. Robert Rector, "Hunger and Malnutrition Among American Children." Heritage Foundation Backgrounder No. 843, August Z 1991. 6 Bernard D. Karpinos, Height and Weight ofMilitwy Youths (Medical Statistics Division, Office of the Surgeon General, Department of the Army. 1960), pp. 336-351. Information on the current height and weight of youths provided by the National Center for Health Statistics of die U.S. Department of Health and Human Services based an the National Health and Nutrition Examination Survey. 7 Rector, "How the Poor Really Live," op. cit., pp. 12-13. 9 Ibid.

How to Fix Welfare and Revitalize America's Inner Cities 5

The central dilemma of the welfare state is that the prolific government spending intended to alleviate material poverty has led to a staggering increase in "behavioral poverty." The War on Poverty may have raised the material standard of living of some Americans, but at the cost of creating whole communities where traditional two-parent families have vanished, work is rare or non-existent, and multiple generations have grown up dependent on government transfers. Negative IncentiveS. This happens because the current welfare system is plagued with negative incentives. It is a system which offers each single mother with two children a"pay- check" o; combined benefits worth an average of between $8,500 and $15,000, depending on the state. The mother has a contract with the government: She will continue to receive her "paycheck" as long as she fulfills two conditions: 1) She must not work; and 2) She must not marry an employed male. 10 Thus, the system makes marriage economically irrational for most low-income parents. It converts the low-income working husband from a necessary breadwinner into a net financial handicap. It transforms marriage from a legal institution designed to protect and nurture chil- dren into an institution which financially penalizes nearly all low-income parents who enter into it. Across the nation, the cuiTent welfare system has all but destroyed family structure in the inner city. Welfare establishes strong financial disincentives effectively blocking the formation of intact, two-parent families. Example: Suppose a young man in the inner city has fathered a child out of wedlock with his girlfriend. If this young father abandons his responsibilities to the mother and child, government will step in and support the mother and child with welfare. If the mother has a second child out of wedlock, as is common, average combined benefits will reach around $13,000 per year. If, on the other hand, the young man does what society believes is morally correct and be- haves responsibly, that is, marries the mother and takes a job to support the family, government policy takes the opposite course. Welfare benefits would be almost completely eliminated. If the young father makes more than $4.50 per hour, the federal government actually begins tak- ing away his income through taxes. Ile Family Support Act of 1988 will permit the young fa- ther to parry the mother and join the family to receive welfare, but only as long as he does not work. Once he takes a full-time job to support his family, the welfare benefits are quickly eliminated and the father's earnings are subject to taxation. Significantly, the onset of the War on Poverty coincided with the disintegration of the low-in- come family-the black family in particular. At the outbreak of the Second World War, the black illegitimate birth rate was slightly less than 19 percent. Between 1955 and 1965 it rose slowly, from 22 percent in 1955 to 28 percent in 1965. But beginning in the late 1960s, the rela- tively slow growth in black illegitimate births skyrocketed-reaching 49 percent in 1975 and 65 percent in 1989. If current trends continue, the black illegitimate birth rate W *11 reach 75 per- cent within ten years. Similar trends are occurring among low-income whites.

9 This sum equals the value of welfare benefits from different programs for the average mother on AFDC. 10 Technically the mother may be married to a husband who works part-time at very low wages and still be eligible for some aid under the AFDC-UP program. However. if the husband works a significant number of hours per month even at a low hourly rate, his earnings will be sufficient to eliminate the family's eligibility to AFDC and most other welfare. 11 'Me 1988 federal welfare law required all states to establish am AFDC-UP program by October 1, 1990. Prior to passage of the 1988 welfare law. 23 states did not have an AFDC-UP program; those states are allowed to limit AFDC-UP cash benefits to six months. but are required to continue to provide Medicaid as long as die family was otherwise eligible for AFDC.

6 How to Fix Welfare and Itevitalize America's Inner Cities

Generous jelfare benefits to single mothers have contributed directly to the rise in illegiti- matebirths.1 Recent research by C. R.Winegarden, of the University of Toledo, found that half of t12 increase in black illegitimacy in recent decades could be attributed to the effects of welfare. Research by Shelley Lundberg and Robert D. Plotnick, of the University of Wash- ington, shows that an increase of roughly $200 per month in welfare br?efits per family causes the teenage illegitimate birth rate in a state to increase by 150 percent. June O'Neill of Baruch College in New York City has found that a 50 percent increase in the value of monthly Aid to Families with Dependent Children (AFDC) and Food Stanjg payments results in a 43 percent increase in the number of out of wedlock births in a state. Similarly, high benefits dis- courage single mothers from remarrying. Research by Dr. Robert Hutchens of Cornell Univer- sity shows that a 10 percent increase in AFDC benefits in a p4ate will cause a decrease in the marriage rate of all single mothers in the state by 8 percent. Penalizing Work. Among the poor, another devastating legacy of the past 25 years has been the dramatic reduction in work efforL For a growing number of poor Americans, the existence of generous welfare programs makes not working a reasonable alternative to long-term employ- ment. During the late 1960s and early 1970s, social scientists at the Office of Economic Oppon. tunity (OEO) conducted a series of controlled experiments to examine the effect of welfare benefits on work effort. The longest running and most comprehensive of these experiments was conducted between 1971 and 1978 in Seattle and Denver, and became know as the Seattle/Den- ver Income Maintenance Experiment, or 66S]INIOMMIE.99 Advocates of expanding welfare had hoped that SIMEIDIME, and similar experiments con- ducted in other cities, would prove that generous welfare benefits did not adversely affect work effort. Instead, the SIME/DIME experiment found that emy. $ 1.00 of extra welfare given to low-income persons reduced labor and earnings by $0.80. The results of the SIME/DIME study are directly applicable to existing welfare programs: Nearly all have strong anti-work af- fects such as those studied in the SIME/DIME experiment. The effects of welfare in undermining the work ethic are quite apparent. In the mid- 1950s, nearly one-third of poor households were headed by an adult who worked full time throughout the year. Today, with greater welfare benefits available, only 16.4 percent of poor families are headed by a full-time working adult. Inter-Generational Dependence. Of the 4.4 million families currently receiving assistance through @N)C, well over half will remain dependent for over ten years, many for fifteen years or longer. Welfare dependency also appears to spread from one generation to another. Chil- dren raised in families that receive welfare assistance are themselves three times more likely to

12 U.S. Department of Health and Human Services, National Center for Heal& Statistics. Note: The black illegitimate birth rate is available only from 1969 on. The pre-1969 black illegitimate birth rates were calculated using the very similar "non-white" rate. 13 For a review of the relationship between welfare and family structure, see Charles Murray, "Welfue and the Family: The U.S. Experience," Journal ofLabor Economics. ftftoming. 14 C.R. Winegarden. "AFDC and Illegitimacy Ratios: A Vector Autoregressive Model,"Applied Economics, March 1998, pp. 1589-1601. 1S Shelley Lundberg and Robert D. Plotnick, "Adolescent Weniarital Childbearing: Do Opportunity Costs Matter?" June 1990, a revised version of a paper presented at the May 1990 Population Association of America Conference inToronto, Canada. 16 M. Anne Hill and June O'Neill, Underclars Behaviors in the United States: Measurement and Analysis ofDeterminaw, forfficoming paper, research funded by Grant No. 99 ASPE201A, U.S. Depw ta ent of Health and Human Sevices. 17 Robert Hutchens, "Welfare, Remarriage. and Marital Search," American Economic Review, June 1999, pp. 369-379. 18 Gregory B. Christiansen and Walter E. Williams, "Welfare Family Cohesiveness and Out of Wedlock Bhft," in Joseph Peden and Fred Glahe, The American Family and the State (San Francisco: Pacific Institute for Public Policy Researck 1996). p. 399. 19 David Elwood, Targeting 'Would-be" LmW-term Recipiertis ofAFDC (Washington, D.C.: U.S. Department of Health and Human Services, January 1986). p. 5.

How to Fix Welfare and Revitalize America's Inner Cities 7

be on welfare than other children when they become adults. 20 This inter-generational depen- dency is a clear indication that the welfare system is failing in its goal to lift the poor from pov- erty to self-sufficiency. Effects of Family Disintegration. The collapse of family structure in turn has crippling effects on the health, emotional stability, educational achievements, and life prospects of low-income children. Children raised in single-parent families, when compared to those in intact families, are one-third more likely to exhibit behavioral problems such as hyperactivity, antisocial behav- ior, and anxiety. Children deprived of a two-parent home are beqyeen two and three times more likely to need psychiatric care than those in two-parent families." And they are more likely to commit suicide as teenagers. Absence of a father also increases the probability that a child will use drugs and engage in criminal activity." Recent research by June O'Neill, for example, shows that young black men raised in single-parent families are twice as likely to engage in criminal activity when com- pared with young black men raised in two-parent fiamilies-even after holding constant a wide range of variables igh as family income, urban residence, neighborhood environment, and parents' education. Because the father plays a key role in a child's cognitive developrUnt, children in single-par- ent families score lower on IQ tests and other tests of mental ability. Children in single-par- ent families are three times more likely to fail and repeat a year in grade school than are children in two-parent families. In all respects, the differences between children raised in single- parent homes and those raised in intact homes are profound, and such differences persist even if single-parent home4jare compared to two-parent homes of exactly the same income level and educational standing."' But the greatest tragedy is that children from broken homes, when they have grown to adult- hood, tend to pass on the same problems to their own children. Weakened in their own devel- opment, children from single-parent homes are markedly less likely to be able to establish a stable married life when they become adults. Young white women raised in single-parent fami- lies are 164 percent more likely to bear children out of wedlock themselves and I 11 percent more likely to have children as teenagers. If these women do marry, their marriages are 92 per- cent more likely to end in divorce than am the marrgges of women raised in two-parent fami- lies. Similar trends are found among black women. Family instability and its attendant problems are thus passed on to future generations.

20 M. Anne Hill and June O'Neill. Underclass Behaviors in the UnitedStates: Measurement andAnalysis ofDeterminants (Now York City, City University of New York, Baruch College. Much 1990). 21 Dr. Deborah A. Dawson, "Family Structure and Children's Health and Well-being: Data from the 1989 National Health Interview Survey on Child Healtk" presented at the Annual Meeting of the Population Association of Americajoronto. May 1990, Table 5. 22 Nicholas Davidson, "The Daddy Dearth," Policy Review, Winter 1990, p. 43. 23 Hill and O'Neill. forthcoming, op. cit. 24 Marybeth Shinn, "Father Absence and Children's Cognitive Development," Psychological Bulletin, Vol. 85, No. 2 (1978). pp. 295-324. 25 Dawson, op. cit.; Davidson, op. cit. 26 hwin Garfinkel and Sara S. McLanahan, Single Mothers and Their Children: A New American Dilemma (Washington. D.C.:The Urban Institute Press. 1996) p. 31.

8 How to Fix Welfam and Revitalize America's Inner Cities

HOW TO BRING HOPE TO POOR COMMUNITIES During the campaign, Mr. Clinton, you seemed aware of the problem. Hopefully you under- stand its immensity. If so, you will appreciate that you must take bold action on several fronts. Action 1: Take steps that will achieve a comprehensive reform of the welfare system. If you are to deliver on your pledge to bring about serious and permanent change in the sys- tem, you must promote comprehensive reforms which maintain a balance between two key themes. First, you must seek to increase the rewards for work and marriage among low-income families. Second, -you mm reduce the rewards currently provided in the form of welfare for non-work and single parenthood. Reforms which fail to follow this balanced approach will be unsuccessful. Comprehensive reform of this kind must have seven components: 1) Reduce, not expand, benefits. Welfare benefits for families on AFDC should be reduced, par- ticularly in states with high benefit levels. Most Americans do not realize that AFDC re- cipients are eligible for benefits from nearly one dozen major welfare programs. In all but five states, the combined value of benefits received by the average AFDC family exceeds the federal poverty income threshold. As noted, higher monthly benefit levels lead to more illegitimate births, more single parenthood, and less work. Moreover, there is consid- erable inequality in welfare benefit levels within each state. Because some families re- ceive aid from many programs, they will have combined benefits much greater than other welfare families of the same size and characteristics within the state. For example, AFDC families which also receive housing aid will have overall benefits some $4,000 to $5,000 higher thari other AFDC funilies within the state. In almost every state such families will have combined welfare benefits well above the poverty threshold. Your Administration should introduce legislation to reduce AFDC payments to families who also receive hous- ing aid. 2) Enact legislation that will establish and enforce serious work requirements. The federal govern- ment should require some, though not all, welfare recipients to work in exchange for bene- fits received, a concept you have already endorsed in principle. Non-elderly and non-disabled recipients of Food Stamps and individuals who have received Unemploy- ment Insurance for over six ifeks should be required to perform community service for at least twenty hours per week. Within the AFDC program, mothers who do not have chil- dren under age five or who have received AFDC for over five years should be required to perform community service for at least 35 hours per week in exchange for benefits. In all two-parent families receiving AFDC, one parent should be required to work. For all pro- grams the work requirement should be permanent, lasting as long as the individual or fam- ily receives benefits. This policy would specifically exempt most mothers with pre-school children from the work requirement.'Because of the high costs of providing daycare, work requirements for mothers with pre-school children probably would increase rather than cut total welfare costs. Moreover, you should be cautious about any policy which separates young children

27 Requiring someone to perform community semce means that they would perform useful functions in government or in non-profit private sector organizations. Conummity service is also called "work experience." Many legislators argue that they would like to require welfare recipients to work in for-profit sectorjobs, but this expectation is unrealistic because few private sector employers are willing to employ persons who literally have to be forced to work. However, requiring the recipient to perform community service with a government organization removes die recipient's option of receiving welfare income without labor. The work requirement makes welfare less attractive relative to employment and will thereby induce many recipients to take real private sector jobs.

How to Fix Welfare and Revitalize America's Inner Cities 9

from their mothers, as this may have a significant negative effect on the children's devel- opment. Thus a well-designed work program generally should not include mothers with young children, at least initially; however, a second rule that all mothers who have re- ceived AFDC payments for over ffire years, either continuously or in separate periods, is needed to discourage mothers from intentionally having additional children to avoid their work obligation. If such a work policy were enacted and enforced, roughly 50 percent of AFDC mothers would be required to work as a condition of receiving benefits. This would be an enor- mous improvement over theim*ent raw. U the -average state today, only 7 percent of AFDC mothers participate in job search, work, or training programs. You can change this, if you put serious policy initiatives behind your solid rhetoric. 3) Enact legislation requiring responsible behavior as a condition of assistance. You should require responsible behavior as a condition of receiving welfare benefits. This would in- clude insisting that unmarried, minor mothers reside with their parents or in some other adult-supervised setting, and reducing payments to mothers who fail to provide their chil- dren with free immunizations. Most important, mothers who bear additional children while they are already receiving welfare should not receive an increase in welfare bene- fits. 4) Promote paternity establishment and enhance enforcement of child-support payments. Single mothers should not be eligible for welfare unless they are willing to identify the fa- ther of their children. Contrary to popular perception, most unwed mothers are not promis- cuous; the father of the child is well-known to them. In cases where it is unclear which male is the father, modem scientific methods permit the true biological parent to be deter- mined with nearly absolute certainty. All single mothers prospectively enrolling in the AFDC prograrn should be required to have paternity for their child legally established as a condition of receiving benefits. The absent fathers then should be required to pay child support to offset at least some of the costs of providing welfare to their children. If an ab- sent father claims he cannot pay child support because he cannot find work, he should be required to perform community service to pay off his child-support obligations. Establishing a rigorous paternity and child-support system would greatly reduce the incentives for young males to enhance their macho image by siring children out of wed- lock whom they have no intention of supporting. Another benefit of the policy is that it would increase the rewards to responsible couples who marry relative to those who do not. Thus, over time, it would encourage marriage. But, a word of warning: The government should avoid aggressively pursuing child support payments among young, low-skilled males without a firm community service requirement for absent fathers who claim they are unemployed. Aggressive child-support activities toward this group, without an accom- panying community service requirement for fathers who fail to pay child support, would counterproductively induce many young men to leave the labor force, or work "off the books," to evade child support obligations. 5) Require states to enforce education requirements. You should issue regulations requiring states to rigorously enforce the current federal law requiring all those AFDC mothers under age eighteen who have not completed high school or passed a GED, to attend school. In order to avoid the undesirable effects of separating infants from their mothers, mothers with infant children should not be required to participate more than twenty hours per week.

10 How to Fix Welfare and Revitalize America's Inner Cities

6) Enact legislation to provide tax credits or vouchers for medical coverage to all working families. The current welfare system, which provides free medical coverage to single parents and non-working two-parent families on AFDC, but does not provide medical as- sistance to low-income working families, discourages both work and marriage. The fed- eral government could reduce the anti-work/anti-marriage effects of welfare by enacting the comprehensive medical re groposed by Heritage Foundation scholars in A Na- @07 I _ tional Health Systemfor America. The Heritage Foundation's Consumer Choice Health Plan would give federal tax credits and vouchers to low-income working families not eligi- ble for Medicaid for the purchase of medical care,.including catastrophic insurance cover- age. 7) Support legislation to provide tax relief to all families with children. The federal government heavily taxes low-income working families with childr6 n. A typical family of four making $20,000 a year currently pays $3,780 in federal taxes. 2 This heavy taxation reduces the rewards of work and marriage relative to welfare, and thus promotes dependence. A cru- cial step in welfare reform is broad family tax relief along the lines proposed in the Heri- tage Foundation's study, A Prosperity Planfor America - How to Strengthen Family Finances, Revive the Economy and Balance the Budget. M This plan would provide a $1,000 tax cut for each school-age child in a family and a $1,500 tax cut for each pre- school child; such tax credits could be used to reduce the family's income tax liability and both the employee and employer share of the Social Security payroll tax. The revenue loss of these tax credits would be matched by corresponding spending cuts enforced by cap- ping the growth of total federal domestic spending. The plan thus would not add to the fed- eral deficit. Action 2: Improve Inner-city education by supporting real school choice. Despite nearly a decade of "reforms" following the publication of the National Commission on Excellence in Education's A Nation at Risk in 1983, there is little evidence that America's system of government education has improved. For low-income students trapped in decaying inner-city government schools, student achievement has not only stagnated or declined, but the schools themselves have also become virtual war zones. Every year nearly three million crimi- nal acts are attempted or completed inside am schools and on school property; every month nearly 300,000 high school students are physically attacked. The Detroit school district was even shut down for two days in 1987 afta 102 school-age children under the age of sixteen were shot during a four-month period. In addition to rampant violence, low-income students in the inner-city must cope with schools that generally provide the lowest quality education. This discourages students who want to learn and stifles academic achievement. In the Milwaukee, Wisconsin, public schools, for example, only 2 percent of black male children have a grade point average above 3.0. In some inner-city school districts, the high school dropout mte routinely exceeds 40 percent. Even among those low-income, inner-city students who manage to survive the mayhem and stay in school long enough to receive a high school diploma, student achievement levels am

28 Stuart M. Butler and Edmund F. Haislinaier, eds., A National Health systemfor America (Washington, D.C.: The Heritage Foundation. 1989). See also Stuart M. Butler, "A Pbficy Maker's Guide to the Health Care Crisis, Part 11: The Heritage Consumer Choice Health Plan," Heritage Foundation Talking Points, March 5, 1992. 29 Figures are for 1991. 30 Scott A. Hodg% ed., A Prosperity Planfor America: How go Strengthen Family Finances, Revive the Economy and Balance the Budget (Washington. D.C.: The Heritage Foundation. 1992). 31 Karl Zinsmeister. "Growing Up Scared," The Atlantic Monthly, June 1990, p. 50.

How to Fix Welfare and Revitalize America's Inner Cities I I

chronically poor. For example, half of the Chic4ho public high schools rank in the bottom I percent of the nation in scholastic achievement. While the educational changes during the past decade have resulted in higher teacher sala- ries, higher per-pupil expenditures, and smaller class sizes, the fundamental structure and deliv- ery of education has changed very little. In the current government school monopoly, the needs of consumers (and especially poor consumers) are subordinate to special interests. The central office of the New York City public schools, for example, employs nearly 7,000 bureaucrats for its approximately 900,000 students-a ratio of one bureaucrat for every 155 students. The New York City Catholic schools, on the other hand,have fewer than 35 employees in the central of- fice-a ratio of one for every 4,000 students?-' Thus it is not surprising that in 1989 in New York City's public schools only 32 percent of the $6,107 allocated per pupil actually reachif the classroom; the remaining 68 percent disappeared in administrative costs and overhead. The enormous government school bureaucracies and the politicized environment in which they function leave little room for innovation necessary to create the types of schools children need and parents want. Without competition and the threat of losing students and the dollars that come with them, it is impossible for the government school monopoly to change. The needs of poor parents are routinely ignored. The large government school monopolies which dominate education in almost every major American city lack the incentives to improve the quality of education. The reason: They know the poor have no alternatives. In urban public school districts like Chicago, where the quality of education is notoriously low, those who can afford it usually send their children to private schools. In fact, 46 percent of public school teach- ers in Chicago-the very people who work in the system and know how bad it really is-send their cilldren to private schools, while only 22 percent of all people with school-age children do so. Because the inner-city poor cannot escape into private schooling, they bear the heaviest bur- den of the failure of the government-run schools. Unlike nearly half of all Chicago public school teachers, the poor do not have the choice to "opt oue' of dismal government schools. And unlike middle- and upper-class Americans, who can afford to either purchase homes in the suburbs or-as you have done-choose private schools, poor children are "left behind7 with an increasingly sub-standard education. The poor's inability to choose alternative educational opportunities leaves them little or no leverage in dealing with the government school bureau- cracy. Poor children and their parents will gain leverage only when their status with the govern- ment school monopoly changes from "guaranteed clients" to "education consumers." The poor must be given the opportunity to take their business elsewhere. Your Administra- tion can help them do precisely that. There are two steps you can take:

Stop #1: Champion legislation In Congress and the states to establish education voucher programs.

32 Bonita Brodt, "Inside Chicago's Schools." in David Boaz. ad. Liberating Schools, (Washington, D.C.: The Cato Institum 1991). p. 67. 33 Peter M. FlanigarL "A School SysternThat Works." TheWall Street Journal, February 12.1991. 34 Bruce S. Cooper and Robert Sarrel, Managingfor School EfIciency and Effectiveness: It Can Even Be Dow in New York City, pp. 4-7. Paper prepared for the University of Chicago Depariment of Education, August 1990. 35 Herbert L Walberg, Michael L Bakalis, Joseph L. Bast, Steven Baer, We Can Rescue Our Children (Chicago: Heartland Institute, 1989), p. 11.

12 How to Fix Welfare and Revitalize America's Inner Cities

Educational vouchers, which allow parents to use their share of a state's per-pupil expendi- ture in any public or private school of their choice, would create a consumer-driven education system. The principle: Let the funding "follow" the child. Recognize that choice should not be restricted to public schools alone. The education establishment's rhetorical support for "public school choice," and their opposition to allowing parents to choose private schools, is an attempt to insulate the current bureaucratic monoploy from competition. Such "choice" plans are still an artificial restraint on consumer demand and a restriction on educational supply, so they will do little to improve the quality of American ed- ucation. According to Brookings Institution Senior Fellow John E. Chubb and Stanford Univer- sity Professor of Political Science Terry M. Moe, reforms like "public school choice" and school-based management, which gained popularity in the mid- to late 1980s failed because they relied on status quo institutions to implement reform when status quo institutions are them- selves the problem. Critiquing "public school choice," Chubb and Moe point out:

[C]hoice is usually restricted to a fixed set of existing schools, which reformers hope to improve through "competition!' that choice will presumably stimulate. All these schools, however, have their existence and financial support guaranteed; ac- dons are inevitably taken to ensure that no schools are "underenrolled" (a bureau- cratic euphemism for what happens when schools are so bad no one wants to attend them); schools that do the worst am implicitly rewarded, because they tend to be the first in line for bigger budgets and more staff .... Under these conditions, giving parents and students choice among schools cannot in itself be expected to produce vigorous, healthy competition among schools. 36

Chubb's and Moe's exhaustive ten-year study of 500 schools and 20,000 principals, teachers and students concludes that the only way to improve the quality of American education is to dismantle the current bureaucratic organization of schools and replace it with one that is gener- ally responsive to consumer demands and competition. They show that competition will im- prove the quality of schools only when parents are given the freedom to choose from a wide supply of school options including private schools. True voucher systems allow the urban poor to opt out of failing public schools and force the government school monopoly to compete for students by improving the quality of education they provide. You have already praised such a voucher program in Milwaukee, Wisconsin, championed by black Democratic legislator Polly Williams, which gave parents the right to use vouchers to send their children to public or private schools. Your Administration should pro- mote the right of parents to choose which schools their children will attend by using the presi- dential "bully pulpit" to publicize die merits of parental choice in education. You should give strong support to states considering education choice statutes. You should also urge Congress to establish a federal program to provide funds for serious and widespread pilot choice pro- grams in inner-city neighborhoods. Worldng with a Democratic Congress, you could be more successful in doing this than your predecessor. If you embark on such a bold path on behalf of inner-city children, both your political cour- age and your tenacity will be sorely tested. The education establishment vehemently opposes giving parents the right to choose non-government schools. This opposition usually is shrouded in pious rhetoric about the "right of all Americans to a quality education," and the fear that

36 John E. Chubb and Terry M. Moe, Politics, Markets and Anwrica's Schools (Washington, D.C.: The Brooldngs Institutim 1990), p. 207-209.

How tD Fix Welfare and Revitalize America's Inner Cities 13

school choice would "leave the poor behind in the worst schools." You should realize that these are thin arguments in defense of self-interest. Such arguments ignore the clear evidence showing that a quality education is virtually non-existent in most inner-city public schools, be- cause the existing public school monopoly has trapped the poor in sub-standard education. The upper and middle classes already enjoy choice in education. It is time for you to give choice to the poor.

Stop #2: Empower parents to use vouchers to help poor students attend religious schools. While government can change incentives, there are limits to the power of government to change behavior. Realize that religion is still the strongest weapon in the war against family dis- integration, crime, drugs, and despair in the inner city. Research by Dr. Roger Freeman of Har- vard University shows that black inner-city youth who have religious values are 47 percent less likely to drop out of school, 54 percent less likely to use drugs Ond 50 percent less likely to en- gage in criminal activities than those without religious values. Religious institutions, includ- ing churches, can succeed in improving urban life where government has failed. Reading and math skills are important in helping young persons in the inner city escape from poverty, crime, and social pathology. But equally important is the development of character, moral values, and self-discipline. While inner-city public schools do a bad job of teaching math and reading skills, they do almost nothing to impart moral values and character. By contrast, re- ligious schools can do an excellent job in fostering the strong character and personal discipline necessary to help inner-city young people in their difficult struggle to transcend poverty and de- spair. Moral renewal is the key to grappling with the present social pathologies of the inner city. Your Administration should harness the moral authority of the churches in the inner city, rather than relegating them to the sidelines. Parents who want to send their children to church schools must be empowered to do so, allowing inner-city religious authorities to play a much greater role in educating and molding the character of their children. Your Administration should take a bold step by promoting voucher systems which will empower poor parents with firm reli- gious beliefs, enabling them to send their children to religious schools which reinforce, not un- dermine, their moral beliefs and values. Liberals and their allies in the government school bureaucracies will claim that it is unconsti- tutional to allow parents to use vouchers for religious education. But the Supreme Court has clearly ruled in Mueller v. Allen and Witters v. Washington State Department of Servicesfor the Blind, that vouchers or tax credits can be spent for religious education without creating constitu- tional problems. Just as a widow can place her Social Security check in the collection plate of a church or synagogue, or a veteran can use funds from the GI bill even to go to seminary with- out violating the constitutional provision against state-established religion, a poor parent may use education vouchers to place a child in a religious school. As long as the parent, not the gov- ernment, decides where the voucher funds will be spent, the government has neither advanced nor hindered a particulargligion, and there is no violation of the religious establishment clause of the First Amendment.

37 Michael Novak, The New Comemus on Family ad Welfare (Washingtom D.C.: American Enterprise Institute, 1997). p. 34. 39 See Clint Bolick, "Choice in Education: Part H - Legal Perils and Legal Opporumities." Heritage Foundation Backgrounder No. 809, February 19, 1991. p. 8.

14 How to Fix Welfare and Revitalize America's Inner Cities

Action 3: Create jobs by signing enterprise zone legislation. You have said repeatedly that you favor enterprise zones. Working with a Democratic Con- gress here, you can be more successful than your predecessor in achieving federal legislation to complement similar legislation in the majority of states. Enterprise zones have been a center- piece 35' f a bipartisan urban economic development and anti-poverty strategy for over a de- cade. Enterprise zone legislation enables a government body to designate certain economically depressed geographic areas as eligible for favored tax and regulatory treatment. Over three dozen states, plus Washington, D.C., since 1982 have enacted enterprise zone legis- lation. According to. HUD estimates, thiVas meant a-combined-$28 billion in new business in- vestment, and almost 260,000 new jobs:" State programs differ, but the more successful ones offer substantial tax and regulatory incentives to business. New Jersey, for example, provides sales tax exemptions for equipment and materials, exemp- tions on state corporate income taxes, and an unemployment insurance tax rebate for each new employee making a gross salary of less than $18,000. As a result of these incentives (especially lower sales taxes), firms that received benefits for at least one year investeT00 million in the state's ten zones, creating over 9,000 jobs, in the program's first four years. A study of job growth in 357 enterprise zones in seventeen states by researchers at Pennsyl- vania State University shows that one-third of the zones hav%frowth rates higher than the na- tional rate. The average zone created or saved over 450 jobs. But federal enterprise zone legislation has been stalled. In 1980, then-Representative Jack Kemp, the Now York Republican, along with then-Representative Robert Garcia, the New York Democrat, co-sponsored an enterprise zone bill, the Urban Jobs and Enterprise Zone Act. But Congress would not pass this legislation. Over the next decaq,., Congress considered numerous enterprise zone proposals, but passed no effective legislation. Finally, in 1992, Congress passed a watered-down version of enterprise zone legislation as part of Tide I of a much larger tax and urban aid bill, the Revenue Act of 1992 (H.R. 11). But Congress deliberately coupled enterprise zone tax relief with large general tax increases, forc- ing President Bush to veto the bill. Your Administration should give enterprise zone legislation a prominent place in your urban agenda. Your appointees should fight for a program that resembles the original enterprise zone idea in which business can invest in 'ft-trade" zones with a minimum of bureaucratic interfer- ence, not some watered down imitation.

39 Stuart M. Butler, "Enterprise Zones: A Solution to the Urban Crisis@" Heritage Foundation International Brieftng No. 3, February 20.1979. 40 See Dan Cordtz, "Mainstreaming the Ghetto," Financial WorlA September 1, 1992. p. 23; Senators Bob Kasten and Joseph L Lieberman. "Enterprise Zones: 'Greenlining'for Growth," The Christian Science Monitor, May 19,1992. 41 Marilyn M. Rubin and Regina B. Armstnmg. The New Jersey Urban Enterprise Zone Program: An Evaluation, report prepared for New Jersey Department of Commeme, Energy and Economic Development, Wayne. NJ: Urbanomics, July 1999. 42 See Rodney A. Erickson, SusanW. Ffiednum, and Richard E. McCluskey. Enterprise Zones: An Evaluation ofStare Government Policies, Washington, D.C.: U.S. Department of Commerce. Economic Development Administratiom January 1999. 43 One provision inTitle VII of the 1987 Housing and Community Development Act of 1987 allowed the Secretary of the Department of Housing and Urban Development (HUD) to designate certain areas as zones, and waive certain federal regulations for businesses located in than. But the legislation contained none of the tax incentives essential to creating an effective enterprise zone. 44 See Stuart M. Butler, Enterprise Zones. Greenlining the Inner Cities New York: Universe Books, 1981). pp. 75-163. See also, Stuart M. Buder,'"Me Urban Policy America Needs," Heritage Foundation Executive Memorandum No. 330, May 5. 19n and Stuart M. Butler and Carl F. Horowitz, "How to Create a Successful Enterprise Zone Program," Heritage Foundation Executive Memorandum No. 334, June 9,1992,

How to Fix Welfare and Revitalize America's Inner Cities 15

Working with Congress, you should follow three basic principles in shaping enterprise zone legislation: Principle #1: Enterprise zone designation must be for at least a decade. As you know, one of the surest ways to undermine political support for an economic development plan is to exaggerate its potential for achieving goals. For zone designation to work in the most depressed areas, it will require several years at minimum to bear fruit. Supporters of a federal zone program should not be pressured to deliver immediately on promises. They can't. By setting up a program in this fashion, you will only give aid and comfort to the liberals who want toreplace4t with-a grandiosezrban "Marshall Plan." The idea of zones begins with the assumption that economic incentives rather than political favoritism is what attracts venture capital to risky areas that banks and other institutional lenders tend to avoid. Principle #2: Federal zone designation should be supported by crime control. Many urban neigh- borhoods can be properly called "war zones," rather than enterprise zones. Unless gang members and other criminals are brought under control, tax breaks and other incentives will have only limited effectiveness in enticing businesses to enter an urban area. There were, after all, thousands of thriving businesses in South-Central Los Angeles until the 1992 riot. Luring businesses back will be difficult. A key goal of urban policy must be to convert urban war zones into urban enterprise zones, but to do this, tax breaks and other enterprise zone policies must be coupled with a dramatic increase in the effectiveness of the criminal justice system in crime-ridden urban areas. Principle #3. Do not lot congressional liberals, who have always opposed enterprise zones, play a "bait and switch" game. Congressional liberals will certainly try to turn your enterprise zone legislation into a standard Great Society-style anti-poverty program, in all but name. Liberal versions of enterprise zone legislation replace the original enterprise zone concept with federal micromanagement and spending. Localities applying for zone status must jump through all kinds of bureaucratic hoops, and demonstrate commitments to boost in- frastructure, job training, housing, and education spending. Liberals also want to impose unworkable requirements upon jurisdictions with zone status to aid selected zone resi- dents. But layers of red tape quickly erode the effectiveness of enterprise zones, and thereby in the long term only hann the poor. Remember that the primary purpose of enterprise zones is to reward entrepreneurial risk-tak- ing and create real jobs. It is not to shackle small businesses or taxpayers with the latest liberal interpretation of fairness or scheme for "social investment." The most successful state zone pro- grams, such as those in New Jersey, Connecticut, Indiana, and Kentucky, give generous incen- tives to businesses, while avoiding massive regulation. You must convince liberals on Capitol Hill to allow enterprise zone programs to stimulate investment, not become platforms for new and costly federal micromanagement. If you don't, the effectiveness of any federal zone pro- gram will be seriously compromised. An ideal enterprise zone bill would:

o( Authorize some $5 billion over five years in tax reductions for participating zone businesses in 100 urban and rural zones, with at least two-thirds of the zones in urban areas; of Fully exempt zone businesses from capital gains taxes, with a minimum holding period of no more than two years, and with no requirement to reinvest proceeds of a sale in a zone;

16 How to Fix Welfare and Revitalize America's Imer Cities

Give individual investors a 50 percent income tax deduction, up to $50,000 annu- ally and $250,000 lifetime, for the purchase of qualified enterprise zone stock; and OF Provide "fast-track" approval for waivers from certain federal regulations, includ- ing requirements for compliance with Davis-Bacon prevailing wages, as well as rules that unnecessarily inhibit job creation. Action 4: Launch a war on crime. America is in the grip of a violent criminal tidal wave. The number of majjg felonies per ca- pita today is roughly three times the normal historic rates from before 1960. Americans suf- fer one murder every 21 minutes, one rape every 5 minutes, one robbery every 46 seconds, and one motor vehicle theft every 19 seconds. Although this crime wave threatens all Americans, its most frequent victims are the urban poor and black Americans. That is why you should pay particular attention to steps that would tackle inner-city crime. According to the 1990 National Crime Victims Survey conducted by the U.S. Department of Justice, families with annual incomes below $7,500 were almost twice as likely to suffer from rape, robbery, and severe assault as were families with incomes above $50,000. Black families were almost twice as likely to be victims of burglary and motor vehicle theft as were whM,,: Compared to whites, blacks nearly twice as often suffered rape robbery and severe assault. '3 When black Americans are asked to identify problems in their neighbor- hoods, crime is by far the most common problem cited. Not surprisingly, 79 percent of blacks think V courts are too lenient towards criminals, with only 6 percent who think courts are too harsh. Crime also has a devastating effect on economic opportunities in inner-city areas. Crime is the ultimate tax. It kills jobs and economic opportunity. While inner-city areas offer attractive features for many economic activities, it is unlikely that economic activity will flourish in these areas without a major reduction in crime. Liberal M*sls of Crime Is Wrong. In dealing with crime, you should not be misled by liberal advice, which claims that crime is not a law and order problem, but rather a broad social prob- lem that can only be solved by tackling its alleged root economic causes and by increasing so- cial services. Economic factors have only a small effect on crime rates. For example, cutting the !amployment rate in half would reduce the national crime rate by only an estimated 5 per- cent. Significantly, the U.S. crime rate rose most rapidly during the economic boom of the 1960s and early 1970s when unemployment was low and wages were increasing rapidly. By contast, during the 1980s, when unemployment was higher and4y@age growth was slow, the crime rate levelled off and by some measures actually declined. Others claim that increasing welfare spending will reduce crime by tackling its alleged root causes. But as the following chart shows, crime v grew most rapidly in the 1960s and 1970s while means-tested welfare spending was soaring. During the 1980s, when the growth of wel-

45 Timothy L Flanagari and Kathlem Maguim ads.. Sowcebook qfCriminal Justice Statistics, 1991, U.S. Department of Justice, Bureau of Justice Statistics (Washington, D.C.: U.S. Government Printing Office, 1992). p. 372. 46 Sourcebook of Criminal Justice Statistics, 1991, p. 296. 47 Sourcebook ofCriminal Justice Statistics, 1991, pp. 197, 203, 211. 48 James Q.Wilson and Richard J. Hermstein, Crime and Hwnw& Nature (New York: Simon and Schuster, 1985), p. 319. 49 The Uniform Crime Reports of offenses reported to police show that serious crimes per capita declined by two percent betwom 1990 and 1990. no more accuate National Crime Victimization Survey which counts both reported and non-reported crimes found that the number of persons victimized by violent and property crime fell by 19.7 percent between 1980 and 1990. Sourceboak 1991, op.cit., pp. 372 and 258.

How to Fix Welfare and Revitalize America's Inner Citic!s 17

Does Welfare Reduce Crime? BOD% Increase in Spending Accompanied by a Tripling of Crime

Crimes per 100 People BlIllorts of 1990 Dollars 6 $250

5 ............... ................. ............. ................................. .... ....... 200

4 ............... ............... . ... ....... ............... ................................. 150

@ Crime Rate 3 ................ ..... ......... . ............. 100 - Welfare Spending

2 .. .......... ......... .. ............ .................................. ................. ....... 50

1960 1965 1970 1975 1980 1985 1"0

Nate: Figures include Federal. State and Local means-tested welfare spending. Source: U.S. Department of Justice, Sourcebook for Ctimina0usfice Statistics, 19 9 1; Robert Rector. 7he Paradox of PoveW 19 9 2. Heritage DatcChart

fare spending slowed, the crime rate levelled off. In fact the evidence strongly indicates that welfare spending, by promoting family breakup, has played a large role in increasing, rather than decreasing, crime. In any case

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