Vermont’s Welfare Restructuring Project (WRP) was one of the first statewide welfare reform programs initiated under waivers of federal welfare rules that were granted before the passage of the 1996 federal welfare law. WRP, which was implemented in July 1994 and will run through June 2001, aims to increase work and self-support among recipients of cash assistance. To this end, the program requires most single-parent recipients to work in wage-paying jobs once they have received welfare for 30 cumulative months (two-parent families with an able-bodied primary wage earner face a full-time work requirement after 15 months of benefits receipt). The state assists recipients in searching for jobs and also provides subsidized minimum-wage community service jobs to those who cannot find jobs by the time they reach the 15- or 30-month time limit. WRP also includes a set of financial work incentives, consisting of supports for families who leave welfare for employment, as well as welfare rule changes intended to encourage and reward work.

The Vermont Department of Social Welfare (DSW), the agency that administers WRP, has contracted with the Manpower Demonstration Research Corporation (MDRC) to conduct a comprehensive evaluation of WRP. The study, which is based on a rigorous random assignment research design, uses data from the entire state, but focuses in detail on six of Vermont’s 12 welfare districts. It began in 1994 and is scheduled to end in early 2002. MDRC is a nonprofit, nonpartisan organization that designs and evaluates social policy initiatives for low-income individuals, families, and communities.

This first report in the WRP evaluation describes WRP’s implementation through mid 1997 and provides early information on how the program is affecting patterns of employment and welfare receipt for WRP’s target population. The analysis of WRP’s effects should be viewed as preliminary because of the report’s timing: the period covered by the report ended just as some single-parent cases (who make up about 80 percent of the state’s welfare caseload) were beginning to reach the program’s 30-month time limit. The work mandate, which is imposed when recipients reach the time limit, may affect their behavior in dramatic ways, but such impacts are not fully captured in this report. Two future documents, a brief update in 2000 and a final report in 2002, will include longer-term data on WRP’s effects and will also compare its financial benefits and costs.

A Brief Summary of the Findings

For purposes of the study, parents who applied for or were receiving welfare in Vermont were assigned, at random, to one of three groups: the WRP group, whose members are both eligible for WRP’s financial work incentives and subject to its time limit; the Aid to Needy Families with Children (ANFC) group,¹ whose members are subject to the welfare rules that were in effect before WRP began; and the WRP Incentives Only group, whose members receive WRP’s incentives but are not subject to its time limit. Because individuals were assigned to the groups by chance, there were no systematic differences among the groups’ members when they entered the study. Thus, any differences in employment rates, welfare receipt, or other outcomes that emerge among the groups during the study’s follow-up period can reliably be attributed to WRP’s policies. Such differences are referred to as the program’s impacts.

The report focuses primarily on about 8,000 people who were randomly assigned to the three groups from July 1994 (when WRP began) through June 1995 in the six districts targeted for intensive study. It examines each individual’s ANFC and Food Stamp receipt, employment, earnings, and income during a 21-month follow-up period. A subset of people — the roughly 1,500 single parents who entered the study in July, August, and September 1994 — is tracked for 33 months.

Results for single parents prior to reaching the time limit. Single parents could not have reached WRP’s time limit during the 21-month follow-up period. Thus, the key question about this "pre-time limit" period is whether recipients’ awareness of WRP’s incentives and time limit caused them to alter their decisions about work, welfare, or participation in employment-related activities. (Participation in Reach Up, Vermont’s welfare-to-work program, is voluntary for single parents until just before they reach the time limit.) Apart from hearing about the policies that applied to their group, recipients in the three groups did not have dramatically different experiences with the welfare system during this period. WRP was well implemented and helped to give Vermont’s welfare system a more employment-oriented focus. Because this new emphasis appears to have affected recipients in all three groups, however, the study does not measure its impact.

• The full WRP program — including both the incentives and the time limit — generated a modest increase in employment during the pre-time limit period. Sixty-eight percent of WRP group members worked at some point in the 21-month period compared with 63 percent of the ANFC group. In addition, the program slightly increased the rate of participation in Reach Up. WRP did not affect the rate of ANFC receipt — about 55 percent of each group were receiving ANFC at the end of the follow-up period — nor did it change the average amount of welfare received or people’s average combined income from public assistance and earnings.

• WRP’s time limit was necessary for generating impacts. WRP’s financial incentives alone had little or no impact on employment and slightly increased the proportion of people receiving ANFC during the last three months of the follow-up period. Adding the time limit to the incentives generated an increase in employment and a decrease in welfare receipt. In assessing these results, however, it is important to note that many of the benefits provided through WRP’s incentive package are also available, at least to some degree, to members of the ANFC group through other programs.

Longer-term results for single parents. A more substantial difference in the "treatment" provided to the three groups emerged when recipients in the WRP group began to approach the 30-month time limit. WRP group members are required to participate in job search activities during the two months before they are due to reach the time limit. Once they reach the limit, they must work in an unsubsidized job (if they can find one) or a community service job. To begin to capture the impact of WRP’s work mandates, the analysis looks at longer-term (33-month) results for people who entered the study early on.

• Once recipients started reaching the time limit, WRP began to increase substantially the proportion of those who were working while on welfare. DSW records show that in Months 27 and 29 of the follow-up period there was only a modest difference between the WRP group and the ANFC group in the proportion who received ANFC and did not report employment. However, by Month 33 a substantial difference had emerged: 32 percent of ANFC group members were receiving ANFC and had no reported employment compared with only 23 percent of the WRP group. Thus, once the time limit began to take effect, WRP began to reduce substantially the number of people who relied solely on public aid — a key goal of the program. Although these longer-term results are promising, two caveats are necessary. First, the results are based on a small group of early enrollees; results for the full sample may be different. Second, because the longer-term data were drawn exclusively from DSW records, it is not possible to say whether WRP generated an increase in employment or only an increase in employment that was reported to the department.

• Staff are making a serious effort to implement the post-time limit work requirement, and few recipients appear to be falling through the cracks. Nevertheless, at any point in time a substantial proportion of recipients are neither working nor exempt from the work requirement, despite having passed the time limit. Detailed case studies indicate that frequent changes in the status of recipients, the absence of strong enforcement tools, and other factors make it very difficult for staff to ensure that everyone is working at all times. Perhaps the most surprising aspect of the post-time limit experience so far is that very few clients have entered community service employment slots. This is seen as an encouraging sign, because it means that a large majority of the clients who are meeting WRP’s work requirement are in unsubsidized jobs.

Results for two-parent families. The "treatment" difference among the three research groups may be smaller for two-parent families in the ANFC-Unemployed Parent (UP) program than it is for single-parent families. Although WRP’s changes in welfare eligibility rules make it substantially easier for certain groups of needy two-parent families to receive assistance, the potential impact of the time limit (15 months for ANFC-UP cases) is muted by the fact that principal wage earners in all three groups are subject to work-related mandates throughout their families’ time on welfare.²

• WRP generated a modest increase in ANFC receipt among ANFC-UP families: 79 percent of families in the WRP group received ANFC benefits at some point in the follow-up period compared with 73 percent of families in the ANFC group. In addition, parents in the WRP group were somewhat more likely to work: 62 percent of principal earners in the WRP group worked in the last three months of the follow-up period compared with 57 percent in the ANFC group; however, this difference was not large enough to be confidently attributed to the new policy. Finally, WRP group members were somewhat more likely to participate in Reach Up, especially in job search activities.

Just under 10 percent of Vermont’s ANFC cases are two-parent families in which one parent is incapacitated. The able-bodied parent in such families is subject to the same time limit and work requirement rules as the sole parent in a single-parent family.

• During the first 21 months of the follow-up period, WRP’s time limit increased employment among two-parent families with an incapacitated parent. In the last quarter of the follow-up period, 50 percent of families in the WRP group had at least one working parent, compared with 40 percent in the WRP Incentives Only group. Adding the time limit also increased the proportion of families who combined work and welfare: 21 percent in the WRP group, compared with 13 percent in the WRP Incentives Only group.

The Welfare Restructuring Project

The current wave of welfare reform efforts began long before August 1996, when President Clinton signed the new federal welfare law. Between 1993 and mid 1996, about 40 states were granted waivers of federal welfare rules, allowing them to implement a wide variety of reforms designed to promote work and self-sufficiency among welfare recipients. Vermont was one of the earliest states to seek waivers for a comprehensive statewide reform initiative (in many other states, reforms were initially implemented only in selected areas).

The roots of WRP can be traced back to mid 1991, when a broad-based review of the state’s welfare system was initiated. The review produced a set of recommendations that laid out the key features of what later became WRP. After a lengthy debate that resulted in some important changes in the program model, WRP was approved by the Vermont legislature in January 1994 and implemented in July.

WRP’s primary goal is to increase work and self-support among ANFC recipients. The program’s designers believed that achieving this goal would lead to other positive outcomes — such as stronger families and improved outcomes for children — and would also bring Vermont’s public assistance programs more in line with public values. Thus, one of WRP’s central features is its "work-trigger" time limit, with wage-paying work required when the time limit is reached.

In designing WRP and its time limit, however, Vermont sought to balance the goal of promoting work with other goals, such as ensuring that families’ basic needs are met and allowing parents to reconcile their dual roles as nurturers and providers for their children. Thus, Vermont did not elect to impose a "benefit termination" time limit in which families’ grants are terminated at the limit: under WRP, recipients remain eligible for cash assistance after reaching the time limit if their earnings are low enough for them to qualify. As noted earlier, the state also provides subsidized community service jobs for recipients who cannot find unsubsidized jobs. In addition, there is a half-time work requirement for single parents with children under age 13 (the work requirement is full time for the principal wage earner in ANFC-UP cases and for single parents with no children under age 13).

Finally, unlike recipients in many other states, single parents who fail to comply with WRP’s work requirements do not have their welfare grants reduced; rather, the state takes control of their grants and uses the money to pay their bills. Recipients subject to this "vendor payment sanction" must attend three meetings at the welfare office each month in order to receive their benefits; noncompliance with this process results in the loss of benefits. (In addition to the other sanctions, two-parent ANFC-UP families may also have their grants reduced if they fail to comply with the work-related mandates.)

WRP also includes two kinds of financial incentives designed to encourage and assist welfare recipients in finding and holding jobs. First, the program changes several welfare rules that were seen as discouraging work. For example, recipients are allowed to keep somewhat more of their ANFC benefits when they go to work than they could under prior welfare rules; they also can own a more valuable (and hence more reliable) car and accumulate more savings from earnings without losing eligibility for assistance. In addition, the process for disbursing child support payments collected on behalf of children receiving ANFC has been changed to make the payments more visible to the parents. Finally, needy two-parent families are no longer automatically ineligible for ANFC if the principal earner works 100 or more hours a month or does not have a recent work history.

Second, WRP expands supports for families who leave welfare for work. It provides three years of transitional Medicaid coverage and also offers transitional child care assistance (on a sliding scale) for as long as a family’s income does not exceed 80 percent of the state median (as opposed to the one year of both transitional benefits provided under prior rules).

Although these policies may be important to many families, it must be noted that many of the benefits provided through WRP’s financial incentive package are also available, at least to some extent, to families in the ANFC group. For example, while WRP provides three years of transitional Medicaid coverage to people leaving welfare for work, Vermont offers at least some health coverage to all families with incomes up to 150 percent of the federal poverty line and to all children in families with incomes up to 225 percent of the poverty line. The situation is similar with regard to subsidized child care. In addition, while WRP rules disregard (that is, do not count) the first $150 plus 25 percent of any remaining earned income in calculating a family’s monthly ANFC grant, this "enhanced" disregard is similar to, and sometimes less generous than, the one provided to ANFC group members during their first four months of work. Beginning in the fifth month of employment, WRP’s disregard is more generous (except if the parent earns $120 per month or less, in which case there is no difference between the two sets of rules).

WRP in the Current Policy Context

Vermont is a small state, and a large proportion of its population lives in rural areas. It has a homogeneous population, a strong labor market, and welfare benefit levels that are among the highest in the nation. Moreover, as noted earlier, WRP was developed long before the 1996 federal welfare law was enacted and differs in some ways from the approach advocated by the new law. (The federal law encourages states to continue the initiatives they began under waivers and stipulates that waiver provisions will take precedence over provisions of the new law where there are conflicts between the two.)

Despite these distinctive features, Vermont’s experience should yield some important lessons for policymakers and program operators in other states and at the federal level. First, WRP seeks to create a new kind of safety net, focused primarily on wage-paying work rather than cash assistance, for virtually all families who have reached the time limit. Many states are searching for ways to assist needy families in ways that are consistent with public preferences for work and individual responsibility. Moreover, the federal law requires states to ensure that recipients are engaged in work activities after, at most, 24 months of welfare receipt.

Second, since a large proportion of Vermont’s population lives in rural areas WRP will provide important lessons on the implementation, effectiveness, and costs of work programs in this kind of environment. Finally, although Vermont is a small state, there is much to be learned from DSW’s efforts to bring about broad changes in the culture and mission of its staff at all levels.

The WRP Evaluation

The WRP evaluation was initially required as a condition of the federal waivers that allowed Vermont to implement the program. It is funded by DSW, the U.S. Department of Health and Human Services, and the Ford Foundation. The study uses data from the entire state, but focuses in detail on six of Vermont’s 12 welfare districts: Barre, Burlington, Newport, Rutland, Springfield, and St. Albans. These districts encompass the state’s largest city (Burlington), as well as several smaller cities and rural areas, and nearly two-thirds of the statewide ANFC caseload.

• Impact analysis. This part of the study provides estimates of the changes that WRP generates in employment rates and earnings, rates and amounts of welfare receipt, family income, the extent of welfare dependence, and other outcomes relative to the welfare system that preceded it.

• Implementation analysis. This component of the study assesses whether WRP’s new policies have translated into concrete changes in the day-to-day operations of the welfare system and identifies obstacles that have been encountered. This information is necessary in order to understand the impact results, and it may also help the state modify the program to enhance its effectiveness.

• Benefit-cost analysis. This analysis uses data from the impact study, along with fiscal data, to compare the financial benefits and costs generated by WRP for both taxpayers and eligible families.

This report focuses on the first two areas of the study. Results of the benefit-cost analysis — as well as longer-term data from the implementation and impact analyses — will be presented in the evaluation’s final report.

As discussed above, the WRP impact analysis is designed both to determine what difference WRP makes and to examine the impacts generated by each of WRP’s two main components: the time limit and the financial work incentives. The three-group design will eventually allow the evaluation to "decompose" the program’s overall impact. Specifically:

• Comparing the WRP group with the ANFC group shows the combined impact of WRP’s incentives and time limit relative to outcomes for the traditional welfare system.

• Comparing the WRP Incentives Only group with the ANFC group shows the impact of WRP’s financial incentives alone, not accompanied by the work-trigger time limit.

• Comparing the WRP group with the WRP Incentives Only group shows the impact that is generated by adding the work-trigger time limit to the financial incentives.

As noted earlier, this report focuses primarily on about 8,000 people who were randomly assigned to the three WRP research groups between July 1994 and June 1995 in the six welfare districts targeted for intensive study; these individuals make up the report sample. (Random assignment was conducted throughout the state, and results for a statewide sample are presented at various points in the report; however, except where otherwise noted, all results are for the six intensive study districts only.) This sample includes nearly everyone who applied for ANFC during this period or who was receiving ANFC when WRP began. Unlike some other programs, WRP did not exclude certain categories of recipients, such as mothers with young children (although certain categories of recipients are exempt from the work requirement if they reach the time limit).

The analysis of WRP’s impacts relies mainly on two types of administrative records: data on monthly ANFC and Food Stamp payments issued by DSW to members of the report sample and quarterly earnings data reported by employers in Vermont and New Hampshire to the state unemployment insurance (UI) systems (many Vermont residents work in New Hampshire). The description of WRP’s implementation draws on staff surveys, site visits to the research districts, and a small-scale telephone survey of clients (these data were collected only in the six intensive study districts).

Results for Single-Parent Families in the Pre-Time Limit Period

• DSW used a careful, inclusive process to plan and implement WRP, and the initiative operated smoothly during the pre-time limit period. Moreover, WRP has helped generate important changes in staff attitudes and activities.

DSW has implemented WRP in phases and has continuously sought input and participation from staff at all levels. Perhaps as a result of this careful, inclusive planning process WRP’s implementation has been relatively smooth.

Moreover, surveys and interviews with staff indicate that WRP has helped generate important changes in the message and focus of Vermont’s welfare system. For example, most welfare eligibility workers report that they now emphasize work and self-sufficiency in their interactions with clients more than they did in the past. Similarly, even before clients began to reach the time limit, Reach Up staff reported that they were placing more emphasis on the goal of employment in addition to removing clients’ barriers to employment and raising clients’ skill levels.

• Apart from hearing about the rules that applied to their group, members of the three groups did not have dramatically different experiences with the welfare system during the pre-time limit period.

The changes in staff activities and attitudes discussed above, although critically important, may not generate impacts that can be measured in the evaluation. As discussed earlier, the study is assessing WRP’s impact by comparing the outcomes of clients in the three research groups. Thus, measurable impacts can be generated only by differences in the "treatment" experienced by clients in the three groups. Changes that affect all the groups will not translate into impacts.

During the pre-time limit period, no single parents in any of the groups are required to participate in employment-related activities. Thus, two factors might make the groups’ experiences substantially different. First, knowledge of WRP’s incentives and time limit might affect WRP and WRP Incentives Only group members’ decisions about work and welfare; in turn, workers’ efforts to explain and reinforce the policies may affect clients’ responses. Second, beyond explaining the new rules, staff might interact differently with clients in the three groups or provide them with different services.

On the first point, it appears that welfare eligibility workers — the key contacts between recipients and the welfare system — have done a reasonably good job of communicating WRP’s new policies to their clients, who seem to have understood at least their broad outlines. However, especially in the early operational period, staff focused more on explaining the new policies than on aggressively marketing them. Moreover, the rules alone may not create very strong incentives for clients to alter their behavior during the pre-time limit period. As noted earlier, many of the benefits offered through WRP’s incentive package are also available to parents in the ANFC group. The time limit represents a greater change, but it does not affect recipients directly until they reach it. If recipients were to respond early to the time limit, they might do so in different ways: some might be inspired to find jobs and leave welfare earlier, while others might stay on welfare longer to obtain education or training services provided through Reach Up.

Regarding the second point, it appears that staff did not send dramatically different messages or provide very different services to recipients depending on their group. This is not surprising because DSW has focused on stimulating overall changes in Vermont’s welfare system rather than on creating sharp distinctions among the groups. In addition, because the same staff worked with members of all three groups, it was not possible to create a distinct "WRP culture" that would affect only members of the WRP group.

Eligibility staff report that, to some degree, they did work differently with members of the three groups — for example, they reported spending somewhat more time on "client assistance" (and less on eligibility-related work) with members of the WRP group. They also more strongly urged members of that group to enroll in Reach Up. For the most part, however, staff gave similar advice to all their clients. More generally, eligibility workers continued to play a fairly narrow role and had limited contact with their clients. Reach Up workers report that their program operated in much the same way for all clients, regardless of their group assignment, during the pre-time limit period.

• During the first 21 months of the follow-up period, before clients began to reach the time limit, WRP generated a modest increase in employment and Reach Up participation and a modest decrease in the proportion of people receiving ANFC and not working. It did not affect welfare receipt or family income.

ANFC recipients were quite likely to work, even without WRP’s incentives and time limit: 63 percent of ANFC group members were employed at some point during the first 21 months of the follow-up period. Nevertheless, as shown in Table 1, the WRP program, including both the financial work incentives and the time limit, generated a modest increase in employment: 68 percent of WRP group members worked at some point. This difference is statistically significant, which means that it is unlikely to have arisen by chance. WRP also slightly increased the rate of participation in Reach Up: 38 percent of WRP group members and 34 percent of ANFC group members entered at least one Reach Up activity.

Although WRP increased the number of people who worked, it had virtually no impact on sample members’ average earnings over the entire follow-up period. (The earnings figures are overall averages that include everyone in the groups, including people who did not work or who worked for only part of the follow-up period.) The fact that WRP increased employment without raising earnings indicates that WRP group members who found jobs earned less per quarter, on average, than did employed ANFC group members. This may have occurred because WRP’s financial incentives allowed parents to accept lower-paying jobs or to work fewer hours than they would have otherwise. It is also possible that WRP persuaded some people with relatively low skills to enter the labor market, and these people may command lower wages.

WRP also did not affect the rate of ANFC receipt or the average amount of ANFC received. The pattern of employment gains without corresponding reductions in ANFC receipt may be related to the issue just discussed: because employed WRP group members earned less, on average, than employed ANFC group members, they may have been less likely to become ineligible for welfare. It is also possible that WRP’s earned income disregard allowed a greater proportion of employed WRP group members to remain eligible for a partial ANFC grant.

In any case, this combination of results means that WRP led to a modest 3.7 percentage point increase in the share of people who combined work and welfare in the last three months of the follow-up period and a corresponding decrease in the share who received ANFC and did not work (see Table 1).

Because WRP had no significant effect on the amount of ANFC, Food Stamps, or earnings received during the follow-up period, it also did not change sample members’ total measured income from these sources or reduce their reliance on welfare, as measured by the proportion of the sample receiving at least half of their income from earnings (not shown in the table).

Results based on a larger sample of families randomly assigned statewide reinforced these findings. The larger statewide sample implies that WRP increased employment and the likelihood that parents combined work and welfare. Likewise, it verifies that WRP decreased the likelihood of receiving welfare without working.

• The time limit was necessary for producing impacts: WRP’s financial incentives alone generated no significant changes in employment or income and led to a small increase in the rate of ANFC receipt.

As noted earlier, the evaluation’s research design allows the study to isolate the impacts of WRP’s package of financial work incentives as well as the additional impacts generated by adding a time limit to the incentives. Table 2 shows these comparisons.

Vermont Department of Social Welfare, U.S. Department of Health and Human Services, and the Ford Foundation.