Utah tackles welfare cliffs

Utah has long been recognized as a leader on welfare reform. Its “One Door” policy, combining welfare support with workforce development, is a model for the nation. Now, led by the effort of Representative Tyler Clancy, Utah is taking the next important step to encourage people to transition from welfare to work: mitigating the impact of “welfare cliffs.”

Welfare cliffs occur when a small increase in income results in a large decrease in welfare benefits, potentially leaving recipients worse off. In some cases, especially for those earning between 100 and 250 percent of the federal poverty level, the marginal tax can exceed 100 percent. These benefit reductions are functionally the equivalent of marginal tax hikes with much the same impact on work. That can discourage those affected from pursuing work, marriage, education, and other steps toward self-sufficiency.

As researchers at Weber State University in Ogden put it, “Workers make job and career decisions based on short-term financial considerations. Benefit cliffs hurt the families who are worse off financially despite moving ahead, hurt businesses who experience churn and struggle to fill open positions and retain workers, and hurt taxpayers who bear the cost of elevated need for public benefits.”

Rep. Clancy, filed budget language establishing a $6 million three-year pilot program to find solutions to the state’s welfare cliffs:  

Funding is requested to establish the Utah Navigation and Financial Planning for Self-Reliance pilot project under the Department of Workforce Services. The project is intended to identify a framework of interventions that better empower Utahns on public assistance who at times constrain their earned income due to fear of triggering “benefits cliffs,” to confidently pursue and accept opportunities for work and other forms of economic progression. The pilot would run over a three year time period and be targeted to serving TANF eligible families. The objectives of the pilot project are: 1) Improve participants’ awareness of how potential changes in their earned income impact their public assistance benefits through enhanced financial planning resources; 2) Improve participants’ ability to transition off of government benefits and into self-sufficiency through work with community-based coaching and mentorship from local nonprofits with a proven track record; 3) Gather real time administrative data on participants’ income, benefits, program utilization, household composition, and other factors that may impact eligibility, as well as the impact of the tested interventions in this pilot, to identify areas of future reform. Funding is requested in the amount of $6,000,000 in TANF to be spent over three years.

Governor Spencer Cox signed the budget, including the welfare cliff language, late last month. 

FREOPP worked closely with Rep. Clancy and others to make this reform a reality. Late last year, FREOPP published this detailed study of welfare cliffs in Utah. We also met with Rep. Clancy when he attended FREOPP’s Freedom and Opportunity Conference in November. FREOPP also weighed in with this op-ed in the Deseret News last month. 

Kudos to Rep. Clancy and his colleagues for undertaking an important reform that will help struggling Utahns escape poverty and dependence. Other states should take notice.