In 1996, when then President Bill Clinton and the Republican majorities in Congress hashed out their major reform of the U.S. welfare system, one of the key elements of the package was to give states more flexibility in how the federal money is spent.
Instead of direct cash assistance to the poor, which was the previous model, the new system gave block grants to the states on the theory that they knew better than the feds how to wean people from a life of government dependency. The states were empowered to use, for example, the Temporary Assistance for Needy Families (TANF) money to provide educational and training programs as well as child-care subsidies to help the poor find and keep employment.
It all sounded good except, according to the critics, this shift from direct assistance to block grants had its own problems: namely, questions about whether the programs that were supposed to help the poor become self-sufficient were actually accomplishing their goal, since there was little accountability for how the money was spent.
Last week’s arrest in Mississippi of six individuals alleged to have been part of a multimillion-dollar embezzlement of TANF funds exposed another problem with block grants. They are apparently easy to steal on a grand scale.
State Auditor Shad White, whose office led the investigation into the theft, said investigators are still tabulating how much was stolen in the scheme that involved, among others, John Davis, the former director of the state Department of Human Services, and Dr. Nancy New, an education pioneer who has started a handful of highly regarded schools. The current estimate is that at least $4 million was stolen, which would make it the largest embezzlement of public funds in recent Mississippi history, and possibly of all time.
The conduit for this theft was Nancy New’s Mississippi Community Education Center, whose share of TANF funds had exploded after Davis, a longtime DHS employee, took over as the agency head. MCEC, which operates Families First Resource Centers around the state, for most of its history received about $2 million a year in TANF money to provide educational programs designed to steer the poor toward steady employment and better lifestyle choices. But suddenly, the nonprofit’s allocation soared to $12.9 million a couple of years ago, and then to $26.7 million.
According to the state auditor, a significant chunk of this money was used by New and her son, Zach New, to fund some of their investments and for other personal benefit, rather than to help the poor.
If the criminal allegations are true, it raises serious misgivings about the entire block-grant rationale.
Fraud and waste are nearly inevitable in government programs. The question is what is the best way to keep it at a tolerable level. Giving state bureaucrats the power to reward the politically connected with multimillion-dollar contracts of federally supplied money appears to be as prone to abuse, if not more so, than leaving the feds in control.1