SECTION 12. SOCIAL WELFARE PROGRAMS IN THE TERRITORIES Coverage and Participation in Selected Programs Expenditures for Selected Social Welfare Programs in the Territories Special Rules SSI Coverage Nutrition Assistance Block Grant for Puerto Rico and Programs for the Northern Marianas and American Samoa Public Assistance Funding Caps Medicaid Caps and Matching Rate State Children's Health Insurance Program Consolidation of Certain Grants for Insular Areas Other than Puerto Rico Certain Tax Provisions that Affect Low-Income Families with Children References COVERAGE AND PARTICIPATION IN SELECTED PROGRAMS Most social welfare programs available to the 50 States and the District of Columbia are also available to the territories. The territories are: the Commonwealth of Puerto Rico, Guam, the Virgin Islands, the Commonwealth of the Northern Marianas, and American Samoa.\1\ Social welfare programs discussed in this chapter provide retirement and disability benefits, unemployment compensation, public assistance for low-income persons or families, education benefits, job training, and social services. --------------------------------------------------------------------------- \1\ For an overview of how the territories are politically organized and their history see Brunno & Laney (1996). This section discusses the availability of social programs in the five major territories and provides an overview of special rules that apply there. It does not discuss Federal financial assistance for three areas that were formally part of the Trust Territories and are now independent in ``free association'' with the United States: the Marshall Islands, the Federated States of Micronesia, and Palau. (The fourth area of the Trust Territories, the Northern Marianas, became a Commonwealth of the United States.) These areas remain eligible for some residual aid from the United States. --------------------------------------------------------------------------- Social welfare programs can be divided into two categories: 1. Federal programs that make direct payments for individuals.--These programs have Federal eligibility and benefit rules and are administered directly by the Federal Government.\2\ --------------------------------------------------------------------------- \2\ This chapter's classification of programs as ``direct'' payments for individuals differs from that found in Federal budget documents and the Census Bureau publication Federal Expenditures by State. This chapter classifies unemployment compensation (UC) as a Federal-State program because States administer and design their own programs within Federal guidelines. UC is not a grant-in-aid program, so that other documents classify it as a direct payment for individuals. Food stamps is also classified as a Federal-State program because it is administered by the States. --------------------------------------------------------------------------- 2. Federal-State programs.--For these programs, States and sometimes localities have a role in the design, administration, and often financing of benefits and services. For the territories to participate in the joint Federal-State programs, Federal law must make them eligible, but the territory's government must act to meet conditions for Federal assistance. Table 12-1 shows the coverage of residents of the territories by selected social welfare programs directly administered by the Federal Government. With the exceptions of Supplemental Security Income (SSI), residents of the territories are eligible for social benefits on virtually the same basis as residents of the States. TABLE 12-1.--COVERAGE OF RESIDENTS OR WORKERS IN THE TERRITORIES FOR SELECTED SOCIAL WELFARE PROGRAMS MAKING DIRECT PAYMENTS FOR INDIVIDUALS ------------------------------------------------------------------------ Program Puerto Virgin Guam Northern American Rico Islands Marianas Samoa ------------------------------------------------------------------------ Social Security.............. Yes Yes Yes Yes Yes Medicare..................... Yes Yes Yes Yes Yes Supplemental Security Income No No No Yes No (SSI). Guaranteed student loans..... Yes Yes Yes Yes Yes Pell grants.................. Yes Yes Yes Yes Yes ------------------------------------------------------------------------ Source: Congressional Research Service. Table 12-2 summarizes the availability in each territory of major social programs that are operated jointly by the Federal Government and the respective territory. Coverage of the Unemployment Compensation Program is determined in the Federal Unemployment Tax Act (FUTA), which applies to Puerto Rico and the Virgin Islands but not the other territories. Though coverage is determined in FUTA, program design is left to the territory. The Food Stamp Program itself operates only in the Virgin Islands and Guam, with a special block grant operating in Puerto Rico and special ``food-stamp-like'' grant programs in the Northern Marianas and American Samoa. The other nutrition programs, for which benefits are fully federally financed but administration is left to the States, generally apply in the territories. Most Federal-State social welfare programs other than those discussed above are grant-in-aid programs by which the Federal Government helps finance benefits and services in State or local programs. Territories, like States, may choose not to participate in grant programs. Participation in a program entails accepting Federal rules and guidelines and sometimes providing State or local dollars to match Federal dollars. Table 12-2 shows whether Federal law makes the territory eligible to participate and whether the area participated in the program in fiscal year 1997 (TANF entry indicates whether the area met the requirement to submit a plan by July 1, 1997). Federal law permits some agencies to consolidate funding and waive certain requirements of grant programs for territories other than Puerto Rico. TABLE 12-2.--FEDERAL-STATE SOCIAL WELFARE PROGRAMS IN THE TERRITORIES, FISCAL YEAR 1997 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ Puerto Rico Virgin Islands Guam \1\ Northern Marianas American Samoa Program ------------------------------------------------------------------------------------------------------------------------------------------------------------- Eligible Participating Eligible Participating Eligible Participating Eligible Participating Eligible Participating ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ Unemployment compensation: Unemployment compensation.... Yes Yes Yes Yes No NA No NA No NA Public assistance and related programs: TANF......................... Yes Yes Yes Yes Yes Yes Yes No Yes No Aid to the Aged, Blind, and Yes Yes Yes Yes Yes Yes \1\ Yes No No NA Disabled. Child Support Enforcement.... Yes Yes Yes Yes Yes Yes Yes No Yes No Foster Care and Adoption Yes Yes Yes No Yes No Yes No Yes No Assistance. Medical assistance: Medicaid..................... Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes State Children's Health Yes NA Yes NA Yes NA Yes NA Yes NA Insurance Program. Maternal and Child Health Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Block Grant. CCDBG........................ Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Social Services Block Grant Yes Yes Yes Yes \2\ Yes Yes \2\ Yes Yes \2\ Yes Yes \2\ (title XX). Food and nutrition assistance: Food Stamp Program............ No NA Yes Yes Yes Yes No NA No NA Nutrition Assistance Block Yes Yes No NA No NA Yes Yes Yes Yes Grant (Puerto Rico) and special grants for ``food- stamp-like'' programs (Northern Marianas and American Samoa). Child nutrition.............. Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes WIC.......................... Yes Yes Yes Yes Yes Yes Yes No Yes Yes Education and training: Compensatory education for Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes the disadvantaged. JTPA......................... Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Child protection: Child welfare services (title Yes Yes Yes Yes \2\ Yes Yes \2\ Yes Yes \2\ Yes Yes \2\ IV-B Part 1). Family preservation services Yes Yes Yes Yes \2\ Yes Yes Yes Yes Yes Yes (title IV-B Part 2). Child Abuse Prevention and Yes Yes Yes Yes \2\ Yes Yes \2\ Yes Yes \2\ Yes Yes \2\ Treatment Act. ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ \1\ Guam operated adult public assistance programs in fiscal year 1997, but did not receive Federal funding for them because it used all of its limited public assistance funds for Aid to Families with Dependent Children (AFDC) in that year. \2\ Programs operating under consolidated grants. NA--Not available or not applicable. Note.--The State Children's Health Insurance Program (S-CHIP) will begin in fiscal year 1998. Source: Congressional Research Service. EXPENDITURES FOR SELECTED SOCIAL WELFARE PROGRAMS IN THE TERRITORIES Table 12-3 summarizes Federal expenditures for programs that make direct payments from the Federal Treasury for individuals. These programs are the largest of the social welfare programs and require no fiscal contribution from the States or territories. TABLE 12-3.--FEDERAL EXPENDITURES FOR DIRECT PAYMENTS TO INDIVIDUALS IN THE TERRITORY, FISCAL YEAR 1996 [In thousands of dollars] ---------------------------------------------------------------------------------------------------------------- Puerto Virgin Northern American Program Rico Guam Islands Marianas Samoa ---------------------------------------------------------------------------------------------------------------- Social Security........................................... $3,135,526 $55,024 $56,661 $1,208 $17,897 Medicare.................................................. 1,031,896 1,010 17,882 NA NA Supplemental Security Income.............................. NA NA NA 1,976 NA Pell grants............................................... 257,919 1,306 1,141 489 820 Federal family education loan--interest subsidies......... 58 NA 47 NA NA ---------------------------------------------------------------------------------------------------------------- NA--Not available. Source: Congressional Research Service based on U.S. Bureau of the Census (1997). Residents of all territories are eligible for Medicare and Federal family education loans, but reported data for some areas are either $0 or round to $0 (less than $500). Table 12-4 shows expenditures for selected Federal-State social programs in the territories. The table shows both total expenditures and the amount of those expenditures for which the territory received reimbursement from the Federal Government. The Federal Government reimburses the territories for 50 percent of Medicaid expenditures up to the territorial funding ceiling set in statute. Similarly, the Federal Government reimburses these areas for 75 percent of their public assistance expenditures, up to a statutory cap. The table also shows financial information for the Child Support Enforcement Programs. The territories are provided a 66 percent match for child support administrative expenses, though some expenses are reimbursed at a higher rate. They also receive incentive payments based on their child support collections and the ratio of those collections to expenditures. TABLE 12-4.--TOTAL EXPENDITURES AND FEDERAL ASSISTANCE FOR SELECTED FEDERAL-STATE PROGRAMS OPERATING IN THE INSULAR AREAS, FISCAL YEAR 1996 [In thousands of dollars] ---------------------------------------------------------------------------------------------------------------- Puerto Virgin Northern American Program Rico Guam Islands Marianas Samoa ---------------------------------------------------------------------------------------------------------------- Unemployment compensation: Federal expenditures................................ $308,671 NA $11,817 NA NA Medicaid: Total medical assistance payments................... 235,617 $11,047 7,292 $2,140 $10,807 Total administrative expenses....................... 20,584 743 1,081 220 NA Total expenditures.................................. 256,201 11,790 8,373 2,360 10,807 Total Federal reimbursement (subject to caps)....... 128,100 4,060 4,193 1,180 2,350 Public assistance expenditures: AFDC benefits....................................... 63,448 14,100 4,174 NA NA Emergency assistance................................. 413 0 0 0 0 AFDC administrative................................. 14,627 1,580 702 NA NA Adult assistance benefits........................... 13,097 2,066 854 NA NA Total public assistance expenditures................ 91,586 17,745 5,730 NA NA Total Federal grants (subject to caps).............. \1\ 68,90 8 3,800 2,800 NA NA JOBS (includes child care funding for AFDC recipients): Total expenditures.................................. 16,809 581 337 NA NA Total Federal grants (subject to caps).............. 11,552 391 252 NA NA Child support enforcement (preliminary fiscal year 96 data): Administrative costs................................ 28,569 2,624 2,418 NA NA Federal share of administrative costs............... 19,504 1,744 1,597 NA NA Incentive payments.................................. 372 281 67 NA NA Nutrition assistance programs: Food Stamp Program.................................. NA 28,174 44,302 NA NA Nutrition Assistance Block Grant (Puerto Rico) and grants for food-stamp-like programs................. 1,143,000 NA NA 4,459 4,427 Child nutrition..................................... 165,018 4,769 5,583 3,111 6,294 WIC................................................. 132,779 5,200 6,025 NA 4,325 ---------------------------------------------------------------------------------------------------------------- \1\ In fiscal year 1996, Puerto Rico transferred $13.1 million to the Social Services Block Grant (SSBG), so that grants subject to the ceilings under section 1108(a) as then in effect totaled $82 million. NA--Not available. Source: Congressional Research Service. Data are from the U.S. Census Bureau, Department of Health and Human Services (DHHS) and the Department of Agriculture. SPECIAL RULES SSI Coverage The Social Security Amendments of 1972 (Public Law 92-603) ended matching grant programs to the 50 States and the District of Columbia for assistance to needy adults who were aged, blind, or disabled and replaced them with Supplemental Security Income (SSI). The new SSI Program provided a Federal entitlement program of cash payments for individuals in these groups. However, SSI was not extended to Puerto Rico, Guam, and the Virgin Islands. The old grant programs for the needy, aged, blind, and disabled authorized under four separate titles of the Social Security Act \3\ continue there. The territories determine benefit amounts. In contrast, the regular SSI Program has federally determined benefits (though States may supplement them). SSI also is fully federally financed. SSI is available in the Northern Marianas. --------------------------------------------------------------------------- \3\ Title I, Grants to States for Old-Aged Assistance for the Aged; Title X, Grants to the States for Aid to the Blind; Title XIV, Aid to the Permanently and Totally Disabled; and Title XVI, Grants to the States for the Aid to the Aged, Blind, and Disabled. --------------------------------------------------------------------------- Nutrition Assistance Block Grant for Puerto Rico and Programs for the Northern Marianas and American Samoa Among the territories, the regular Food Stamp Program operates only in Guam and the Virgin Islands. The Omnibus Budget Reconciliation Act of 1981 (Public Law 95-35) replaced the Food Stamp Program in Puerto Rico with a special Nutrition Assistance Block Grant. Puerto Rico was given a great deal of flexibility in program design. Funding is limited to an amount set in law, which for fiscal year 1998 is $1.204 billion, making it by far the largest Federal needs-tested program in the Commonwealth. The Northern Marianas and American Samoa are also given fixed grants with which they administer food-stamp- like programs, though the program in American Samoa is limited to the elderly and disabled. The programs that operate instead of the regular Food Stamp Program in Puerto Rico, the Northern Marianas, and American Samoa were generally unaffected by the changes to the Food Stamp Program made in the 1996 welfare reform law. Additionally, the bar on food stamp eligibility that applies to most noncitizens does not apply in these programs. Instead, these territories are governed by the law's rules for public benefits that apply to needs-tested programs other than food stamps. That is, the territory may aid those who arrive after August 22, 1996, after they have resided in the United States for 5 years. Regular food stamp rules apply in Guam and the Virgin Islands, and noncitizens are generally ineligible for food stamps in these areas. Guam and the Virgin Islands have higher food stamp benefits than are paid in the 48 contiguous States and the District of Columbia (higher food stamp benefits are also paid in Alaska and Hawaii), and households in these areas are also subject to special rules governing deductions from gross income when calculating countable income to determine food stamp payments. Public Assistance Funding Caps Combined Federal funding for public assistance programs for Puerto Rico, Guam, and the Virgin Islands is capped at a maximum dollar amount. The cap for the territories covers the combined Federal grants of Temporary Assistance for Needy Families (TANF); the grant programs discussed above that operate in these areas instead of SSI; and programs under title IV-E of the Social Security Act (foster care, adoption assistance, and independent living programs). Before July 1, 1997, the public assistance cap covered Federal matching grants under Aid to Families with Dependent Children (AFDC), assistance programs for needy adults; and title IV-E programs. The welfare reform legislation (Public Law 104-193) ended AFDC and related programs, and established the new TANF Program, which provides capped Federal funding for all jurisdictions. The bulk of TANF funding is contained in a basic block grant which allocates funds through a formula based on Federal payments from fiscal year 1992 through fiscal year 1995. For Puerto Rico, Guam, and the Virgin Islands, the welfare reform bill also: 1. Raised the overall cap on public assistance expenditures by approximately 10 percent, effective October 1, 1996; and 2. Authorized a new special matching grant (section 1108(b) grants) for their TANF or title IV-E (foster care, adoption assistance, and independent living) programs. It provides 75 percent reimbursement for expenditures made on these programs above the fiscal year 1995 levels. Table 12-5 shows the public assistance funding caps and the TANF block grant and the total public assistance funding caps for the territories. These caps are not subject to adjustment or increases under current law. Funds above the TANF cap amount are available on a 75 percent matching basis for adult public assistance, TANF, or title IV-E (foster care, adoption assistance, and independent living) programs. This superblock feature of funding for the territories provides them with added flexibility in using Federal funds to attack social problems. TABLE 12-5.--PUBLIC ASSISTANCE FUNDING FOR THE TERRITORIES [In thousands of dollars] ---------------------------------------------------------------------------------------------------------------- Funds available TANF State for adult family assistance, child Total funding Territory assistance protection, and cap grant 1108(b) matching grants ---------------------------------------------------------------------------------------------------------------- Puerto Rico.................................................. $71,563 $35,692 $107,255 Guam......................................................... 3,465 1,221 4,686 Virgin Islands............................................... 2,847 707 3,554 American Samoa \1\........................................... NA 1,000 1,000 ---------------------------------------------------------------------------------------------------------------- \1\ American Samoa is not eligible for grants under the adult public assistance programs. NA--Not available. Source: Congressional Research Service. Puerto Rico, Guam, the Virgin Islands, and American Samoa are also eligible for certain TANF funds in addition to these caps. They can receive additional funding for welfare-to-work grants created in the Balanced Budget Act of 1997 (Public Law 105-33), bonuses for high performance and reductions in out-of- wedlock births, and evaluations. Medicaid Caps and Matching Rate For the States, there is no limit on Federal payments for Medicaid. As with public assistance programs, however, the territories are subject to spending caps for Medicaid. The Balanced Budget Act of 1997 raised the Medicaid funding caps for the territories. Table 12-6 shows the Medicaid caps for fiscal year 1998 under prior law, the increase enacted in the Balanced Budget Act, and the new caps for fiscal year 1998. For fiscal year 1999 and subsequent fiscal years, these caps will be increased by the percentage change in the medical care component of the Consumer Price Index (CPI) for all Urban Consumers. The Medicaid matching rate, which determines the share of Medicaid expenditures paid for by the Federal Government, is statutorily set at 50 percent for the territories. TABLE 12-6.--MEDICAID FUNDING CAPS FOR THE TERRITORIES, FISCAL YEAR 1998 [In thousands of dollars] ---------------------------------------------------------------------------------------------------------------- Increase provided by New fiscal Territory Prior law cap Public Law 105- year 1998 cap 33 ---------------------------------------------------------------------------------------------------------------- Puerto Rico..................................................... $137,000 $30,000 $167,000 Virgin Islands.................................................. 4,150 750 4,900 Guam............................................................ 4,340 750 5,090 Northern Marianas............................................... 1,310 500 1,810 American Samoa.................................................. 2,510 500 3,010 ---------------------------------------------------------------------------------------------------------------- Source: Congressional Research Service based on discussions with Health Care Financing Administration staff. State Children's Health Insurance Program All territories are eligible to participate in the State Children's Health Insurance Program (S-CHIP) created in the Balanced Budget Act of 1997 (Public Law 105-33). Except for a special rule for funding, S-CHIP will operate in the territories on the same terms as in the States. The program provides funds at a 65 percent matching rate to the territories up to a maximum cap. The cap for the territories is a special set-aside 0.25 percent of total available funding. For fiscal year 1998 through fiscal year 2001, Puerto Rico's cap is $9.8 million; Guam's cap is $374,063; the Virgin Islands cap is $277,875; American Samoa's cap is $128,250; and the Northern Mariana's cap is $117,563. CONSOLIDATION OF CERTAIN GRANTS FOR INSULAR AREAS OTHER THAN PUERTO RICO Public Law 95-134 authorized any Federal agency to consolidate grants for the territories of Guam, the Virgin Islands, the Northern Marianas, and American Samoa. Each of these areas is permitted to submit a single application and are paid a single sum that could be expended on any purpose allowable under any of the programs in the consolidated grant. The areas are permitted to determine the proportion of the consolidated grant to be spent on various activities. Public Law 95-134 also permits the administering agency to waive matching and application or reporting requirements. The Department of Health and Human Services (DHHS) permits Guam, the Virgin Islands, the Northern Marianas, and American Samoa to consolidate up to 22 grant programs, including the Social Services Block Grant (title XX), Maternal and Child Health, child welfare services, and Child Abuse and Neglect State Grants.\4\ DHHS permits these areas to submit a single report in lieu of individual reports required for the programs included in a consolidated grant. All eligible insular areas have opted for consolidated grants, though for only some of the programs (see table 12-2 for an indication of which major programs are consolidated in each area). --------------------------------------------------------------------------- \4\ See regulations at 45 CFR 97.10-97.16. The regulations list 21 programs that may be consolidated. In addition to these 21 programs, information from DHHS indicates that the territories can also consolidate the title IV-B subpart B program for family preservation (which is not listed in the regulations). --------------------------------------------------------------------------- CERTAIN TAX PROVISIONS THAT AFFECT LOW-INCOME FAMILIES WITH CHILDREN \5\ --------------------------------------------------------------------------- \5\ For a general discussion of the application of Federal taxes in the territories see Brumbaugh (1994). --------------------------------------------------------------------------- Residents of Puerto Rico are generally exempt from the Federal personal income tax, and hence are not eligible for tax provisions that affect low-income families with children such as the earned income tax credit (EITC) and the dependent care tax credit (DCTC). Residents of the other territories also do not pay Federal personal income taxes. However, residents of the Virgin Islands, Guam, and the Northern Marianas benefit from the EITC and the DCTC of the Federal Tax Code because their territorial tax systems ``mirror'' that of the Federal income tax. That is, the territories generally use the Federal income tax system as their own, though residents actually pay their taxes to the territory and not the Federal Government. Federal law requires the Virgin Islands to use the Federal income tax system as the territorial tax system. Guam, the Northern Marianas, and American Samoa are also required to mirror the Federal income tax unless they execute an agreement with the Treasury Department meeting certain conditions required to establish an independent tax system. Only American Samoa has executed such an agreement. The corporate Tax Code includes two tax credits offered to employers who hire welfare recipients: the work opportunity tax credit (WOTC) and the welfare-to-work tax credit enacted in Public Law 105-34. U.S. chartered corporations operating in the territories are eligible for these two credits because the Federal corporate tax is levied on their worldwide income. However, U.S. chartered corporations operating in the territories may already have their Federal tax liability eliminated or significantly reduced by the possession's tax credit, a special incentive provided to companies that operate in the territories. Corporations chartered in territories are considered ``foreign'' corporations under the Federal Tax Code. Therefore, companies chartered in Puerto Rico would not benefit from Federal tax credits for employers that hire welfare recipients. However, companies chartered in the Virgin Islands, Guam, and the Northern Marianas that operate under mirror tax systems do benefit from these credits under territorial tax systems. REFERENCES Brumbaugh, D.L. (1994, June). Federal taxes and the territories: An overview (CRS 94-498E). Washington, DC: Congressional Research Service. Brunno, A., & Laney, G.P. (1996). U.S. insular areas and their political development (CRS Report 96-579 GOV). Washington, DC: Congressional Research Service. U.S. Bureau of the Census. (1997, April). Federal expenditures by state for fiscal year 1996 (Report FES/96). Washington, DC: U.S. Department of Commerce.