Entitlement Reform: A proposal to begin a conversation about meaningful reforms and end political lipservice

It came to my attention last week that there are a great number of people in this country who have absolutely no idea how the government’s welfare programs work. I’m not entirely sure why this surprised me so much. Probably because all of my life, nearly everyone I knew was on some form of welfare. It is nearly impossible for me to fathom what it would be like to grow up in a family that knew no poverty. But, having learned that there are many of you who aren’t familiar with these programs, I find myself called to educate you about what these programs are, how they function and how we might improve them without punishing the poor for being poor. This is a long one, but I hope you will stick with it and hear me out. There really is valuable information here.


I get pretty amped up over the issue of entitlement reform, in the same way that my mother used to get amped up about welfare reform in the 90’s. Even Bill Clinton, whom I admire tremendously, did no favors for the welfare system with his reforms. Sure, he greatly reduced the number of people receiving benefits, but that is not because they were lifted out of poverty. For many people removed from the welfare rolls, their plight was made much, much worse. His “welfare reform” has evolved in recent political discussions to be called “entitlement reform”, meant to encompass any benefit passed along to individuals through the federal or state government, expanding the commonly thought-of welfare reform to include reforms to Medicare, social security, student loans and grants, and unemployment insurance.

It will likely surprise many people who read my blog to learn that I am not entirely against “entitlement” reform. In fact, I agree completely that the system is broken and requires reforms. I just disagree entirely with the reforms that have been proffered thus far by politicians who have no idea how the programs work, who they actual benefit, or how to potentially make them function better. I also have a problem with the political conversation in this country which requires politicians to vehemently bash “entitlement spending” or bash their opponent’s plans for “entitlement reform” without ever offering a single detail of how those reforms might take shape. The fact that they continue to offer-up “entitlement reform” as a campaign catch-phrase in a context that has the average American conjure up an image of Reagan’s infamous Welfare Queen (Google it, seriously), while really planning to gut programs like education grants and Medicare, programs which greatly benefit the middle class is not just wrong, it is downright deceitful. It is the reason that no one in this country can seem to have an intelligent conversation about this election. Instead we all stand around and shout at our TVs, or watch late night comics make fun of Romney’s latest “foot-in-mouth” episode, neither of which are adding anything intelligent to the political discussion. The truth is that there is need for, and room for, so-called entitlement spending in our nation. And the programs can work if we can decide to use them more wisely. By way of example, I offer my own story.

When I was 14, I got pregnant. It happened. I had to deal with it. I decided to have the baby and raise him myself. Now, being a mother at 15 meant that I needed a LOT of help. A lot of that help came from my family and even more from the father’s family. But a great deal has come from the government, both federal and state. It would have been impossible for me to navigate the path that has led me into my current profession and out of poverty without these programs. They were essential to my journey, and not because I was lazy or refused to work, but because I did work, hard, to lift my family out of poverty.

At 15, I couldn’t even drive, and state law restricted the number of hours I could work in a given work week. My mother was not available to support me. I applied for TANF (Temporary Assistance for Needed Families). This program used to be called AFDC and is what most people think of when you say “welfare.” I got a check every month for $253 to be used for whatever I needed it for. There is no mandate that says it has to be used to pay utilities, or that you can only use it to buy clothes at Goodwill, but it is a miniscule amount of money and it is up to the family to use it wisely. There are limits, imposed under the Clinton administration, that require TANF recipients to be either employed, enrolled in school, or actively seeking employment. And even under those circumstances the amount of time a person can receive the benefits is limited to 2 consecutive years, and 5 years in total over your lifetime.

I also applied for Medicaid, a North Carolina state program which is partially funded with federal dollars. Medicaid is different from Medicare, which we all pay for and expect to receive when we retire or become disabled. Medicaid covered my medical expenses so that I could have good prenatal care. I continued to be covered by Medicaid until I turned 21, at which time I was picked up by my employer’s health insurance. My children are currently covered under NC Health Choice, a modified version of Medicaid that requires small co-pays for services they receive. For the last 3 years, I paid a $50 premium per year per child for them to be covered. We pay $1 for prescriptions and $3 for doctor visits. These co-pays could stand to be modified. In truth, I could well afford to pay as much as $20 per doctor visit and $10 for prescriptions. In my opinion, the co-pays should be calculated on a sliding scale based on income.

I also applied for WIC, a program offered through the US Department of Agriculture which provides specific, essential grocery items free of charge for pregnant women and to families with children under 5. This program serves two purposes. It provides foods that contain vital nutrients to pregnant women and children to try to improve their health, and it allows the federal government to subsidize dairy farmers, a task our federal government has loved very much over the last century (anybody remember government cheese?). I received three WIC vouchers per month while I was pregnant that provided me with milk, eggs, cheese, peanut butter, cereal, juice and dry beans. Once Dylan was born our WIC vouchers also provided formula, rice cereal, and baby food in addition to the other items. I continued to receive WIC benefits until Daniel was 5 years old, 10 years altogether. In order to receive WIC, the kids and I had to meet with a nurse every three months to be weighed, have our iron tested and receive nutrition counseling. I understand that the program has been expanded in recent years to also offer several fresh produce items, canned tuna, yogurt and a variety of other foods. It is one of the few government programs to experience such expansions in the last decade.

We also received food stamps, now catchily called SNAP by the federal government. Unlike the WIC program, food stamps can be used to purchase any grocery item regardless of its brand, cost or nutritional value. Food stamps cannot be used to purchase household goods such as toiletries, sandwich baggies, paper towels, etc., nor can they be used to purchase hot foods from the deli. It’s hard for me to recall the amount of my food stamp benefit because it changed every time I switched jobs or got a raise at work. But I believe it ranged over time from about $300 per month to a low of about $150 per month before it ended completely because of my pay increases. Unlike the TANF program, there are no requirements that the head of household be working or seeking work and no limits on the amount of time you can receive food stamps. Also, the amount of benefit received is not calculated on gross wages as other programs are, but are calculated on gross wages minus certain housing and childcare costs which makes far more people eligible to participate in the program.

We also received, and still do receive, childcare vouchers for assistance with daycare expenses. In our area in Western North Carolina, childcare costs average about $500 per month per child for children 1-5 and are even more expensive during the first year of life. The childcare voucher system is set up so that families are expected to contribute a percentage of their monthly gross income toward their childcare and there is a requirement that the parent(s) be working or enrolled in school before even being placed on the waiting list. Luckily for me, there was more funding for this program in the 90’s, the waiting lists were not terribly long, and I had a priority placement on the list because I was a high school student. Had it not been for the assistance provided in this program, had I been required to pay for the full cost of daycare for Dylan and Daniel, it would have been impossible for me to finish school or get a full-time job. Funding for childcare subsidies has declined dramatically over the course of the last 10 years. If a single mother, or even a young two-parent family, has to stay home with a child instead of working they are automatically going to be dependent on other government welfare programs. Let’s be real about the figures here. A single mother working a full-time job at $8.00 per hour is going to gross $320 per week and probably bring home about $280. That means her real income is $1,120 per month, when you subtract the cost of her childcare, her actual income is $620. Can we really justify asking her to sacrifice 40 hours per week with her child to bring home $620? Heaven forbid she be the mother of two children! Then she could spend her entire month working to bring home $120. For many women, it makes much more sense to stay home with their children and draw income from other available government programs. What incentive do they have to work without assistance with childcare costs?

I was also fortunate to benefit greatly from the federal government’s Section 8 rental housing program administered by the Department of Housing and Urban Development. Section 8, now called the Rental Voucher program, assisted with my monthly rent payments. Their formula is a little difficult to explain, but stick with me and we’ll give it a go. HUD says that the average family should spend no more than 30% of its monthly income on rent. So, if you are that single working mother grossing $320/week, you should be spending no more than $426 per month on your housing costs. At the time I was receiving Section 8, the minimum wage was much lower and I was actually making $6.00 per hour. So my 30% contribution was only $320 per month. HUD determines, using a complex statistical formula, what the “market” or reasonable expected rent is for the Asheville Metropolitan Area for houses of different sizes. If you are a family with 2 children of the same sex, you qualify for a 2 bedroom house and the current market rent for that house in the Asheville area is currently $704. When I was receiving benefits 10 years ago that was only $585 and I’m glad to see they have increased it to more closely match the current market. So, HUD will pay up to $704 - $426, or $278 for our example mom. She can go out into the market and find any house she wants to rent so long as the landlord accepts Section 8 and the total rent is less than $704. This was, and is, an excellent program. It assists needy families with housing, a basic human right as defined by the UN Declaration of Human Rights, and puts money back into the hands of landowners who paid the taxes to support the program in the first place. Unfortunately, funding for this program saw drastic cuts under the Bush administration, which have not been restored by President Obama’s administration. The waiting list for Section 8 assistance in Asheville has grown so large that they have stopped accepting applications altogether. This is a serious problem, especially when coupled with the fallout from the foreclosure crisis which has forced many families back into rental housing, increasing demand on the market. And in an economy where new construction is extremely limited, the supply of rental housing is not increasing, meaning that rents are going up while assistance shrivels. For our hypothetical single mother making $1,120 per month to shell out even $650 per month to rent a two-bedroom trailer, cheap even by HUD standards, is going to severely limit her ability to provide even the most basic of necessities for her child, and if she is paying $500 per month for her childcare costs, she is already in the hole without spending a single penny on electricity, food, gas or clothing. The solution for many young families has been multigenerational housing. In other words, young families are simply moving in with the folks who are now having to struggle to support their twenty-something’s, their grandchildren, and themselves.

So, now you know all the ways that this teenage, single-mother has mooched off the system for the last 15 years to live lavishly, sometimes even managing to pay the electric bill just before it got shut off, often albeit with the help of Eblin charities. My TANF benefits ended before I graduated from high school because of the time limits imposed, and I was not eligible to apply for Section 8 until I was 18, so I never received both of those benefits at the same time. But, on average, I was receiving roughly $1,200 per month in benefits from the state and federal government (about $300 in food stamps, $250 in Section 8/TANF benefits, $400 in daycare assistance, $100 in WIC vouchers, and about $150/month in health care expenses for myself and for the boys).

I mentioned earlier that there are some smart ways to reform the system. The biggest is in the administration of these programs. They are so splintered and scattered. I had a separate social worker for each and every program. And each program has its own income requirements and calculations for benefits. Each program has a different cycle for recertification and its own set of paperwork to be filled out either annually, semi-annually or quarterly. For years, I had to miss work at least 10 times per year to take paystubs to my various social workers. This may not seem like much, but it means that each one of these social workers, six of them for me, had to send me a notice in the mail, schedule an appointment with me, sit down with me to review my information and have me sign their forms and disclosures, always the same forms I had signed the year before and the year before that and the year before that. They would each tally up my income, notate the difference from the year before, adjust my benefit and send me on my way. At no time were any of them allowed to actually be social workers! They were, and are still, paper pushers whose job is not to help lift needy families out of poverty and off of government programs, but instead to simply tabulate figures, file forms and move on to the next in line. Additionally, it is precisely this splintering of information that allows for people to work the system. Some programs require you to be under a specific gross income threshold, some simply calculate your benefit based on your income, and still others are based on your net income after payment of some basic expenses. Having data collected separately by each program means that individuals can selectively limit which information is provided to each social worker because there is no communication or cross-checking between them.

So, why not reform this system. I see no reason why these programs for the needy couldn’t be consolidated under one umbrella in much the same fashion as the Federal Government restructured a variety of federal agencies under the umbrella of Homeland Security under the Bush Administration. Why require every single recipient to meet with 3 or 6 or 10 different social workers every year to supply each of them with the same information? Why not assign one social worker to the family. Allow that social worker to retrieve the family’s income tax information in the same way that the FAFSA application for college grants does? Design the computer system so that once the tax information is populated from the IRS website into the Social Services program, all of the assistance that the individual or family is entitled to under available Federal and State programs is generated automatically, in one location. Now, this single social worker has done in minutes what it previously took 6 different social workers 6 hours in total to do. How much good can this one social worker do for this family by spending another hour talking about available education programs, job-training programs, parenting classes, early head-start programs for children, and generally supporting the family to encourage and lift them out of poverty? This is what social workers went to school to do. This is what they want to do. We should let them. Simply yanking the benefits away from people and telling them to get out in the world and make a go of it is impractical, ignorant, and lacks compassion. If they were capable of doing so, they wouldn’t have needed these programs in the first place! In addition, consolidating the acquisition and housing of this required information serves to save the federal and state governments in the costs of building space, computer equipment, paper and staffing costs.

Poverty is a cruel cycle which is so very difficult to break out of. Are there people who take advantage of the system, living off of government programs without trying to lift themselves up? Sure, of course there are. But they are not the norm. The vast majority of people using these programs are working parents making less than $25,000 per year. It is not that they are unemployed and lazy for the most part, it is that they lack the skills, education or opportunity to earn more money. (I will refrain from starting my diatribe about the reality that real wages have fallen over the course of the last 30-40 years and every single working family now has to work harder and longer with two wage-earners to sustain the same standard of living previously achieved by having only a single wage earner in every house, but it is worth at least noting.) So let’s talk about real entitlement reform. The kind that could result in meaningful change, in a reduction of the actual poverty rate instead of just putting people out on the street, without food, housing or childcare and telling them to pull themselves up by their tattered bootstraps and get moving.

I am lucky. I was blessed with excellent genes and a mother who taught me to think critically and act with compassion. I have worked so hard to pull myself and my children out of poverty and break that cycle. And for the most part I have succeeded. While we aren’t even middle-class and we do still live paycheck to paycheck, and while they are still receiving NC Health Choice benefits to provide for their medical care and vouchers for a small portion of their afterschool care costs, I am no longer having to use any of the other programs that I was blessed to have been able to utilize along the way, and my children do not remember what it was like to be “poor.” They don’t identify themselves as poor, which in itself will give them a huge leg-up on where I was when I started. Because in this society, if you are poor, there is an implied condescension directed your way, one that weighs on your shoulders and tells you that you are not good enough, that you are reliant on all the rest of the country who are somehow better than you because their circumstances are different than yours and that you should be ashamed. It’s hard to imagine that you are worthy of a better life, capable of providing more, and in fact entitled to earn a real living wage when everything around you tells you that you are not. It is one of my sincerest hopes that this country finds itself doing a serious about-face in the near future when it comes to the discussion of entitlement reform. We should be having real discussions about how the programs work, who we intend to support, how we can direct the benefits to people who need them and help lift people out of poverty instead of shaming them. We have to bring compassion to this discussion. We must. If we don’t I fear that my children may bear witness to the kind of peasant revolts that rocked Enlightenment Era Europe. The poor will only tolerate being shat upon while the rich get richer for so long a time.

An Economy Held Hostage

We all heard quite a bit of news coverage about mortgage derivitives after the foreclosure crisis had its stranglehold on the country a few years ago. It was, and is, terribly difficult to understand. I listened to countless stories on NPR and read articles until my head was swimming with mortgage industry buzz words. The gist of it was that banks figured out that they could get groups of people to buy into groups of mortgages so that they could liquidate the mortgages faster and make more loans. So, your pension fund might decide that the 6% interest paid on home loans was a better investment than the 4% they might earn in a mutual fund. So, the pension fund pools together money and buys a bundle of mortgages from Bank of America. The pension makes money on the interest, Bank of America made money on the origination charges. And now the pension has a steady stream of income on its investment and Bank of America has fresh cash to use to make new loans. This system allowed cash to be infused into the mortgage lending industry so that big banks could keep making more and more loans. And all was great, until it wasn't.

There has been considerable coverage and multiple documentaries about the mess that was created in the housing market when the foreclosures started mounting. The domino effect of rising rates, falling values, increased foreclosures, and ultimately blighted neighborhoods. But, there has not been sufficient coverage about what is going on now in the housing market. We are supposed to think that the housing market is not rebounding and that the overall economy is still sluggish. But this simply isn't true. In the last eight months, existing home sales are up dramatically. Many realtors in my area say that they have more properties under contract right now than they had at any time during the great boom in 2005-2008. The key is that they have contracts, but not closings. It would be easier to build a house by hand yourself than to try to get a mortgage loan right now, and there are several reasons why.

The first is that in response to public outcry, the federal government under Obama implemented rigorous new regulations for the mortgage lending industry. These regulations were intended to insure that consumers were well informed about their loan and the costs associated therewith before they sat down at the closing table. Lenders are now required to provide a Good Faith Estimate (GFE) with expected closing costs broken down item by item. The fees paid by the consumer directly to the bank, called Origination Charges, cannot increase between the time the quote is given and the actual closing. The lender also has to estimate the fees that will be charged by vendors or other third parties in connection with the closing and there are limits on the increases for these. The paperwork behind these regulations is cumbersome for the lender, the borrower and the closing attorney or title company (depending on your state). And frequently they do not serve the purpose intended. The problem 5 years ago was not that borrowers were not adequately informed about their loans, but that there was no policing of mortgage brokers or lenders who were not conforming to the similar and less cumbersome regulations that were in place at the time. There were plenty of borrowers who didn't understand the loan they were getting or the implications of an adjustable rate, interest-only mortgage, but that wasn't because they weren't given a disclosure ahead of time, it was because they were financially uneducated. They didn't know what the disclosure meant and no one was making sure it was appropriately explained to them. What was needed was not more regulation, but smarter regulation and better enforcement.

The GFE requirements are a pain, but we can live them. They are not the crux of the problem. The real problem stems from the interindustry fallout associated with the foreclosure crisis. During the boom, loans were closed with such speed and so little attention to detail that just about any transaction could find its way to the closing table, no matter how poorly documented the borrowers income or how terrible the title problem. As foreclosures began mounting and attorneys and title insurance companies once again began searching title with more care, the lenders found themselves stuck holding the bag on some pretty undesireable properties. And the pendulum swung in the other direction, grossly over-correcting. The process of obtaining loan approval for a conventional residential mortgage has become as complex as the mechanics of a BMW, as frustrating as trying to get a colichy baby to quit crying, and as tiring as running a marathon!

Folks, I have seen it all over these last eight months. A widow told she needed a death certificate for her late husband dated within 60 days of submission to the lender. Perhaps this particular lender believed in the possibility of a zombie virus raising the undead from their graves and sending them scrambling for home loans? A client whose lender's unnecessary hard pull on a credit report mid-way through the application process sends his credit score tumbling an unbelievable 4 points! Evidently a significant enough drop to cost him an 1/8th of a point on his interest rate and $800 in origination charges. Too late to back out of the loan since the lender has delayed closing more than two weeks past the contract deadline and the seller is ready to walk. Another client this week is being asked to make her way through three years of bank records spread among three banks to dig up every single cancelled rent check she has written for the last three years! Are you kidding me!? You have seriously got to be kiding me! And client, after client, after client calls me up to say, "I just sent them three more bank statements, explained the change in my address for the third time, provided documentation to support the loss on my income taxes from three years ago, and now they want WHAT?!" And time after time after time I spend hours of my day reassuring sellers that its not that the buyer isn't creditworthy. "No, Ms. Johnson. Honestly I don't think there is anything to worry about with Mr. Smith's loan. I know it is two weeks past the contract deadline and he still doesn't have loan approval, but please believe me when I tell you they are all like this now." And repeating that same conversation for buyers and agents.

All of this exuberant verification is being done, not to satisfy Washington regulators, but to satisfy the requirements of the inter-bank mortgage trading industry. If Bank A can't show to Pension Fund D that all of these mortgages were really and truly made to highly qualified and vetted borrowers, they might not be able to package them up and sell them off. So, instead of formulating reasonable requirements that would allow money to keep moving through the economy and spur on the housing market and associated parts of the economy, lenders are perfectly happy to delay a closing by several months, ask borrowers to resubmit the same documentation over and over, and ultimately continue to hold the rest of the economy hostage so that they can continue to sell their mortgages in the secondary market.

I know that the loan officers I work with routinely are sick of me. They are tired of me complaining. They are tired of me insisting that they get on with it, that they not rewrite the contracts of our clients since they themselves are not lawyers, that they act with reasonableness, and, heaven-forbid, that they return my phone calls and e-mails. And clearly my frustrations are directed at entirely the wrong people. It is not my local loan officer who should bear the brunt of my nagging and derisive voicemails and repeated e-mails. If I wasn't spending so much time trying to get just ONE of my 25 currently open property files to the closing table, maybe I could spare a few moments to tell my President and my Congressmen precisely what I think about their poorly thought-out and terribly executed mortgage lending regulations and offer them a few suggestions for how they might wrangle our economy out of the death grip of the mortage lending industry.