Court Invalidates '92 Welfare Cuts : Finance: Federal appeals panel says impact on state's poor was not considered. If the ruling is upheld, it could nullify subsequent cutbacks and worsen budget crisis.

By VIRGINIA ELLIS

July 14, 1994 12 AM PT

TIMES STAFF WRITER

SACRAMENTO — In a decision that could have repercussions across the nation and muddy the state of California’s budget picture, a federal appeals court on Wednesday invalidated millions of dollars in California welfare cuts, saying government officials had failed to consider the hardship they would impose on poor families.

The 2-1 ruling by a panel of the U.S. 9th Circuit Court of Appeals in San Francisco said the Bush Administration violated federal law in 1992 when it approved the cuts without investigating the potential impact on the 2.7 million Californians who receive welfare payments.

Writing for the majority, Judge Alfred Goodwin said there was clear evidence that the benefit reductions would put many segments of the welfare population at “increased risk of homelessness, inadequate nutrition, and a variety of emotional and physical problems.”

The ruling applied specifically to a portion of the 5.8% reduction in Aid to Families With Dependent Children benefits that was imposed Dec. 1, 1992. But lawyers on both sides of the issue said it could also nullify a further 2.7% reduction approved last year and a 2.3% cut scheduled to go into effect in September.

The ruling, if it is upheld on appeal to the full 9th Circuit Court, could spark another budget crisis for the state’s already hard-pressed treasury. A consultant for the Assembly’s budget-writing Ways and Means Committee said the decision could cost the state between $125 million and $130 million a year.

Officials for Gov. Pete Wilson declined to say what their next move would be, but they are expected to try to delay any potential impact on the state budget by requesting that the issue be heard by all 11 judges on the court.

The three-judge panel did not specifically order that benefits be raised, but advocates for the poor said they believed restoration of benefits would be the ultimate result, if the ruling survives further challenges.

“I think some policy makers have felt there are no limits when they want to balance the budget by reducing living standards of poor families. . . . I think this decision will set a much stricter standard for that,” said Casey McKeever, an attorney for the Western Center on Law and Poverty, which sued the state and federal governments on behalf of welfare recipients.

The governor, who said he was still reviewing the decision, predicted that other programs for the poor would suffer if the state is eventually required to restore welfare benefits. Specifically, he said, it would affect programs that provide incentives for adult aid recipients to work and for teen-age welfare recipients to stay in school.

“If, in fact, the result of this decision is to deprive thousands of California families of the dignity of work and the opportunity to better their lives through participation in programs like (these), that would be a terrible tragedy for California,” Wilson said through a spokeswoman.

The decision was clearly a setback for Wilson, who has spearheaded the move to cut welfare benefits since taking office in 1991, contending that the reductions would serve as incentives for benefit recipients to go to work.

The Legislature refused to cut benefits as deeply as the governor requested but complied each year with his request for some reductions. In 1991, lawmakers lowered grants by 4.4%, in 1992 by 5.8%, in 1993 by 2.7% and this year, by 2.3%. For a family of three, that meant the maximum cash benefit had dropped from $694 a month in 1991 to $593, the level that was set to go into effect in September.

Federal law, however, forbade cutting benefits below the level of May 1, 1988, unless federal officials specifically agreed to waive the legal requirements. In California, for a typical welfare family of three, the May, 1988, benefits provided a maximum cash grant of $633 a month.

The Wilson Administration made a formal request for the required federal waiver, contending that the cuts would allow the state to test the validity of its theory that welfare reductions would encourage recipients to work.

The Bush Administration not only approved the cut, but gave California permission for additional reductions of 5%.

Advocates for the poor challenged the Bush Administration’s approval, arguing that such “human experiments” could not be allowed under federal law if they caused undue hardship. And the California welfare cuts, they contended, would cause extreme hardship, especially for welfare families in which the adults could not find work or were disabled.

The appellate court agreed and overruled a decision by U.S. District Judge David Levi of Sacramento that had upheld the state’s position. Advocates for the poor, wrote Judge Goodwin, “have indisputably shown that California’s experiment has serious problems both as an experiment and as an attempt at welfare reform . . . given the minimum level of benefits already paid to AFDC families, it is difficult to imagine that the benefits cut would radically change the existing incentives to work.”

McKeever said the ruling could revolutionize the way waivers of federal law are approved. If the ruling is upheld, he said, it would also force courts in other states to nullify welfare cuts.

“I think the court’s decision begins to bring back the purpose of the waiver authority from a mere attempt to evade the law to more genuine attempts to improve the operation of the welfare system,” he said.

“Some lawmakers have viewed the waiver authority as an open season on the safety net for the poor and the court’s decision, I think, places enormous limits on the ability to avoid federal laws that protect minimal living standards for the poor.”

* WELFARE BIRTHS: Out-of-wedlock births a key issue in reform debate. A15