CAP: New York State's Experiment with Economic Incentives

Public Welfare, Winter 1994 | Go to article overview

CAP: New York State's Experiment with Economic Incentives


In 1989, New York State launched the Child Assistance Program (CAP), a highly innovative approach to welfare reform. CAP is distinctive in its reliance on positive economic incentives and case management in encouraging clients to increase earnings and attain child support orders. The program's ultimate objective is to help recipients of public assistance move toward self-sufficiency; but CAP also aims to raise clients' incomes above the poverty level even while they remain on assistance.

CAP is a voluntary alternative to Aid to Families with Dependent Children (AFDC). Although nearly every AFDC client is eligible to enroll, none is required to do so. The new program is designed to be attractive to AFDC recipients mainly on the basis of four features:

*Lower implicit tax rate. CAP's implicit tax rate--the rate at which benefits are reduced when a client has earnings--is dramatically lower than that under AFDC. CAP benefits are reduced by 10 percent of earnings up to the poverty level and 67 percent thereafter; AFDC benefits are reduced by nearly 100 percent after four months of employment.(1) As a result, CAP offers clients the promise of higher total incomes while they are on public assistance.

*Fewer constraints on household budgeting. CAP clients retain greater control over their finances than do AFDC clients. Food stamp benefits are paid in cash, not coupons; and the strict asset limits mandated under AFDC are completely eliminated.

*Better case management services. CAP case managers carry significantly smaller total caseloads than do their AFDC counterparts. Consequently, CAP clients may receive more intensive and more personalized case management services.

*"Nonwelfare" image. CAP is presented as an economically superior and more dignified alternative to welfare for clients willing to take on the necessary responsibilities. That image is supported by the program features mentioned above and reinforced through such mechanisms as professional-looking office space for CAP operations, separate from welfare offices.

With these "carrots," CAP hopes to induce clients to obtain child support orders and to become employed or increase their earnings. The link to support orders is novel but straightforward: benefits are tied to the number of children for whom child support orders have been obtained against absent parents. A client who has secured no court orders is not eligible for any benefit under CAP, whereas a client who has support orders for all of her children is eligible for the full CAP benefit.

CAP is thus the first major experiment testing an incentive-based approach to child support acquisition. Under current AFDC policies, clients are required to cooperate with the Child Support Enforcement Program, which includes providing information that may be used to obtain support orders. AFDC clients receive as a bonus the first $50 of each month's child support payments, a further incentive to provide information. Nonetheless, many program administrators believe that some AFDC clients do not cooperate as fully as they could. CAP eliminates the $50 bonus but ties benefits directly to the number of orders attained. For the client who has no orders, all of the attractions of CAP remain effectively out of reach. Thus CAP places a much higher premium on obtaining child support orders than does AFDC or any existing reform initiative.

CAP's main mechanism for influencing clients' work efforts is the more favorable treatment of earnings inherent in its low tax rate. To understand the CAP incentive, however, it is necessary to consider the basic benefit level--that is, the benefit that a client with no earnings would receive--as well as the rate at which the benefit is reduced when the client has earnings. The basic CAP benefit is much lower than the AFDC grant for a family of the same size. Clients with no earnings or low earnings are financially better off with AFDC. Such clients are not expected to enroll in CAP until they have enough earnings to make CAP financially advantageous. …

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