DATE: Saturday, May 10, 1997                TAG: 9705100369

SECTION: FRONT                   PAGE: A3   EDITION: FINAL 

SOURCE: ASSOCIATED PRESS 

DATELINE: WASHINGTON                        LENGTH:   64 lines

STRONG ECONOMY AND POLICY REFORMS HELP SHRINK WELFARE AID

The booming economy is responsible for almost half of the dramatic drop in welfare numbers nationwide, a White House report concludes. It also poses the obvious question: What happens when the economy inevitably slows?

The report released Friday by the Council of Economic Advisers also credits states that experiment most boldly with welfare changes, particularly those that punish recipients who don't participate in work requirements.

``This study is further proof that welfare reform works,'' said Bruce Reed, President Clinton's chief domestic policy adviser. It's not just the economy at work, he said.

The economy is responsible, however, for 44 percent of caseload drops, according to the analysis of unemployment rates, welfare policies and caseload changes. It concluded that policy changes enacted by states under federal waivers account for 31 percent of the decline.

The other 25 percent was unaccounted for, although administration officials credited policies such as expansion of a tax credit for the working poor.

Low unemployment means more job chances for people leaving welfare, and the current economic expansion is already the third longest in history.

Welfare rolls jumped during the 1990-91 recession and began to fall as the economy strengthened in 1993 and 1994. So what happens if the economy turns down?

``We did not pretend when the president signed the bill that there were enough protections in an economic downturn,'' said Donna Shalala, the secretary of Health and Human Services.

But she pointed out that federal payments to states are based on caseloads at their peaks, meaning states will have more money per welfare recipient than ever before. Many states are saving that money for an economic rainy day, she said.

The report comes as states, freed from all but a few federal restrictions, take responsibility for creating welfare programs. The six-decade federal guarantee of aid for the poorest Americans disappeared when Clinton signed the welfare law last summer.

States begin the task a step ahead. The number of people on welfare has fallen dramatically since peaking in 1994 - 20 percent nationwide and more than 40 percent in states such as Wisconsin and Oregon.

But no one knows how long that will last - or what has happened to people who leave the rolls.

``The key question is, are we pushing more people into poverty? We don't know,'' Shalala said.

The report notes the relationship between economic conditions and welfare is not perfect. For instance, welfare rolls in Virginia dropped 20 percent although unemployment was above average between 1993 and 1996.

Robert Rector, who analyzes welfare for the conservative Heritage Foundation, argues there is ``virtually no relationship'' between the economy and caseloads. In the booming 1960s, caseloads rose as welfare was expanded, and in the early 1980s, caseloads remained steady during a recession because eligibility standards were tightened.

``Over the long term, anybody who knows anything about this can see the welfare policies are much more important than the economy in terms of reducing caseloads,'' Rector said.

Analyzing six popular policies, the report concludes only one had a significant effect: punishing people who won't participate in work programs. That often means reducing benefits, or sometimes removing people from rolls. The policy is estimated to reduce caseloads by nearly 10 percent. KEYWORDS: ECONOMY WELFARE STUDY

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