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Budget Cuts Put Family Gains at Risk: Slowing economy threatens to erode advances in public policy

It’s been a difficult year for Nora Watters and her family. The 38-year-old Decatur woman has managed to find work, but her job with the National Opinion Research Center only brings in an occasional paycheck. The family of four, which earned about $30,000 last year, has been on an especially tight budget since last fall when Watters’ husband lost his full-time job at a local car dealership. 

To make matters worse, Nora Watters’ 12-year-old son Kendall was diagnosed five years ago with a brain tumor, bringing additional medical expenses. And a recent routine visit to a dental clinic revealed that her 15-year-old son Johnathon needs to see an oral surgeon. Fortunately, Watters has had access to KidCare, a shared state and federal program that provides medical benefits to children from working families such as the Watters that can’t afford private insurance. 

KidCare, launched in 1998, is a state and federal program designed to help cover the basic needs of the working poor that got a boost during what has been called the longest economic expansion in U.S. history. Similarly during the 1990s, Illinois’ low-income parents enjoyed increased access to state-aided childcare. As welfare reform reduced reliance on public assistance and pushed more people into the workforce, the state transferred some of its savings to cover those costs.

An increasing number of working families have needed such assistance. Despite finding work, many of these families are still struggling to make ends meet. From 1990 through 2000, Illinois saw a 6 percent drop in the number of children living in poverty, according to a recent national study by the Baltimore-based Annie E. Casey Foundation. But during the same period, the study showed the number of Illinois children living in working-poor families rose 29 percent to 537,000 children in 2000. Under the study’s definition, an annual income for a working-poor family of four with two children would fall roughly between $17,000 and $35,000. These families had one parent working for 50 or more weeks during the year.

The irony is that a slowing economy has put pressure on governments to pull back funding on social service programs just as working-poor families face a soft job market that makes the assistance more important than ever. And this threatens to erode the advances in public policy that have given children from Illinois’ low-income families a better chance to succeed. 

“We worry about losing very important gains we’ve been making for children in Illinois,” says Jerome Stermer, president of Voices for Illinois Children, a child advocacy group that publishes an annual study on the welfare of Illinois children called Illinois Kids Count, which is also funded by the Casey Foundation.

Indeed, Illinois politicians face tough choices in the coming months. Gov. George Ryan’s proposed 2003 budget, which lawmakers have until the end of May to take action on, has recommended reducing the state’s Medicaid reimbursement rates to noninstitutional doctors, dentists and chiropractors by $76 million. These cuts also will affect doctors serving KidCare patients.

Initially started by former Gov. Jim Edgar to extend Medicaid coverage to working families that couldn’t afford health insurance, enrollment in KidCare has grown more than five-fold from 1998 to cover 156,995 children in 2001, according to the Illinois Department of Public Aid. The cost to families varies according to income and family size. Children in families of four with annual incomes of up to $24,073 are generally covered under the KidCare Assist Base program, which is part of the state’s Medicaid program and requires no co-payment or premium. A family of four making between $24,073 and $33,485 would either pay no premium and $2 co-payments on the low end of the range for each doctor visit or a $30 monthly premium and $5 co-payments on the high end. 

Despite the expansion of the KidCare program, the lower reimbursement rates that doctors now face may make it less attractive for private practitioners to accept patients who rely on the state programs to pay for medical services. That translates into more difficulties for people like the Watterses, who are trying to make sure their children get the medical treatment they need. Nora Watters is grateful that a local clinic’s doctors routinely accept KidCare, but it doesn’t always have specialists on staff. She is having trouble finding an oral surgeon who will treat her older son. 

“One oral surgeon told me if I had $800 for a down payment on the expenses we could talk, but I don’t even have enough money for food to feed my kids this week,” says Watters, who hopes she can get through this difficult financial patch without needing to apply for more substantial public assistance.

Lower-income families are watching similar scenarios play out across the country. Illinois is one of many states struggling to balance their budgets in a recession that ended years of unprecedented economic expansion and revenue growth. 

More than two-thirds of the states have taken steps to cut spending on programs for low-income residents, according to a January report by the Washington, D.C.-based Center on Budget Policies and Priorities.

In Illinois, the threatened changes come in the wake of many measurable improvements in children’s welfare. 

For example, Voices for Illinois Children’s Kids Count 2002 study showed that the number of children from low-income families who have state or federally funded medical coverage rose 19 percent from 1998 through last year to 932,690. This was largely due to increased enrollment in KidCare. From 1995 through 2000, there was a 2 percent rise in the number of students graduating from high school. And since Gov. Ryan took office, the state has boosted childcare spending from $448 million to $667 million in the current fiscal year. 

Child advocates also concede that Gov. Ryan’s $52.8 billion budget proposal for the fiscal year that begins July 1 contains some elements that would continue the gains made by working-poor families. These include a proposal to use $45 million in state money to attract federal funds that would expand the current KidCare system to cover the parents of children in the program. In its first year, the state public aid department expects the program would be extended to cover up to 80,000 parents whose income is less than 65 percent of federal poverty level. The administration estimates that this proposal, which needs federal approval, could ultimately provide medical coverage to as many as 200,000 adults.

In addition, the budget plan included a $14.3 million proposal that would increase payment levels for Temporary Assistance for Needy Families, the restructured welfare program that replaced Aid to Families with Dependent Children in 1997 with a new focus on getting recipients back into the workforce. The increase in TANF, which provides cash assistance and work support to low-income families with children, would be the first increase in more than 12 years.

In addition, Ryan included $5.8 million to fund the development of a preschool program that would be available to all 3- and 4-year-olds in the state. This plan is designed to build upon state programs that currently exist for children at risk of academic failure. The proposal coincided with the release of a report by a task force assembled by the governor showing that every dollar invested in early childhood education recoups $7 in such benefits as reduced crime and need for remedial education.

But there are other cuts that will hit low-income families hard, Stermer says. Besides reductions in Medicaid payments to doctors, Ryan’s proposal included a $33 million cut in the budget for state-aided childcare programs. Working-poor parents will see their co-payments for childcare rise from 10 percent to 20 percent, depending on family size and income. For example, officials from the Department of Human Services say a family with an earned income of $13,000 and two children in childcare would see their weekly payments rise $16 to $18.70Another proposed change would radically affect education funding. 

It would eliminate 22 grant programs, which earmark dollars for such specialized services as early childhood preschool for at-risk children, bilingual education and truant and dropout assistance. While the grants do not exclusively serve low-income children, many of them ensure that districts use the money to reach out and help troubled students succeed in school. 

Under the governor’s proposal, the money would instead be distributed as general state aid to boost per pupil spending. This is probably the least likely proposal to win legislative approval because so many lawmakers, including those representing Chicago and downstate schools, have calculated that their districts would end up net losers. 

Illinois House Majority Leader Barbara Flynn Currie, a Chicago Democrat, says she hopes the Conference of Women Legislators will oppose the childcare cuts that would raise co-payments and the elimination of the early childhood grant money.

“This is the opening salvo in the budget battles. I’m hoping we’ll be able to take a different approach,” Currie says, adding that it was contradictory for the state to support preschool for all at the same time that it cut the nearly $185 million early childhood education grant that mandates preschool for those children who are particularly at risk of not being prepared to enter school.

Ryan administration officials argue the cuts are difficult but need to be taken in the context of the many gains made in recent years. 

Karan Maxson, director of transitional services for the Illinois Department of Human Services, says the administration has overseen a dramatic increase in childcare spending. “The changes of course are difficult, but overall I don’t see that as backing away from the commitment at all,” Maxson says. The co-payments, she adds, are still well below private sector costs.

That kind of thinking is difficult for parents like Marilyn Atkins to understand. A single Chicago mother of six with a full-time job as a personnel officer, Atkins earns $25,000 and pays $69.23 a month to send two toddlers to the Nia Family Center in Chicago. Even a small increase in her payments would be too much, she says. And while she has family that she can turn to for help, she fears others who won’t be able to afford higher co-payments might leave their children at home alone or with uncaring adults — with disastrous results.

“You’re going to have so many tragedies on the news, and then it’s going to be too late to help.” 

There also could be dire consequences as a result of the $200 million in annualized cuts in Medicaid hospital reimbursement rates made late last year that will carry over into the proposed 2003 budget, says Karen Porter, a spokeswoman for the Illinois Hospital Association.

According to the association, Illinois ranks among the bottom 10 states in terms of reimbursement for Medicaid services. Though the Ryan Administration had increased some payments for the most complex care, Porter says, those advances have been erased by the recent cuts. She says the impact will affect everyone who uses hospitals because hospitals will simply have less money to provide the same services. 

“People who come to hospitals for Medicaid do not go to a separate door — they’re simply paid for differently and what will change for them are the same things that will change for everyone,” Porter says. The cuts could mean some hospitals will have to cut staff, others will shutter services, requiring patients to travel farther, and a few might even close altogether, Porter says.

Child welfare advocates argue that the future for the state’s low-income children needn’t be so bleak. They hope legislators will consider alter-natives that could boost revenues. Among the proposals that appear most likely to advance is a bill that would put a 30 percent tax on the net proceeds resulting from the sale of gaming licenses. Rep. Julie Hamos, a Chicago Democrat who is one of the bill’s sponsors, acknowledges the revenue source is not steady, as such licenses do not change hands every day. But the hefty price tags that have touched the $400 million range would mean a considerable gain for the state, she says. 

Likewise the Center for Budget and Tax Accountability in Chicago is supporting several ways to boost state revenue. 

The bipartisan think tank estimates the state would see an additional $537 million in annual revenue by raising the per-pack cigarette tax by 75 cents to $1.33. It also advocates the decoupling of the Illinois estate tax from the federal phase-out. This would prevent the loss of $90 million in revenue in fiscal year 2003. And it supports an increase in the tax on gross casino receipts, which would raise an estimated $90 million annually.

Some states already have taken such steps. 

For example, Florida will recoup $128 million by suspending a planned cut in its intangible property tax, while New York, Connecticut and the state of Washington have hiked taxes on cigarettes, according to the National Conference of State Legislatures in Washington, D.C. When the New York tax hike goes into effect in April, that state will have the highest tax in the nation as its per-pack tax rises from $1.11 to $1.50, says Arturo Perez, a senior policy specialist in the national conference’s fiscal affairs program. 

Another uncertainty in Illinois’ fiscal struggles is the potential for significant change in how low-income families are served by federal policies. Congress is preparing to debate reauthorization of the welfare reform law of 1996, which sunsets this fall. Thanks to that law, and its focus on getting recipients back into the workforce, the number of families receiving welfare has dropped by half nationally to about 2 million. That said, there is concern the numbers will rise in the current economy. 

Conservatives such as Robert Rector, a senior research fellow at the Washington, D.C.-based Heritage Foundation, view the program as a remarkable success. As caseloads drop, he proposes a 10 percent cut in the budget and a shifting of those savings to tax credits for lower-income families. He also is open to phasing in some of the changes so that they do not hit recipients during the current downturn.

The more liberal California-based David and Lucile Packard Foundation, which publishes The Future of Children journal and promotes policies for children, are hoping to see an expansion of the goals of welfare reform to include more childcare subsidy programs for the working poor. A recent Packard report maintains it’s important that families who move from welfare to work see income increase if the long-term effects on children are to be positive.

Whatever the outcome of the reauthorization of federal welfare reform, it’s clear that all states are entering this recession armed with a very different set of public policies to assist struggling families, says Greg Duncan, professor of education and social policy at Northwestern University. While public assistance was previously aimed at supporting those who lost their jobs, Duncan says unemployment benefits are a fraction of what they used to be, and more support now goes to assist those who are working.

“This downturn is really going to be playing out under very different conditions than in the past,” Duncan says. “We’ve supported work and that’s good, but it has left us more vulnerable than in the past.” 

The Watters family in Decatur knows all too well how vulnerable they are. Nora Watters is hoping she will be eligible for the new FamilyCare medical program proposed by Gov. Ryan. In the meantime, she is still struggling to pay medical expenses that she incurred for surgery she underwent — without insurance — several years ago. 

“I try my best to pay it but it’s almost impossible,” she says. 

“We’ve just had no income.” 


Maura Webber is a free-lance business writer. Her most recent piece for Illinois Issues was about state telecommunications regulation.

Illinois Issues, April 2002

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