Overhaul of Welfare Will Drive Up Costs, Officials Say : Reform: President’s plan could cost $5 billion to $7 billion a year. White House is looking for ways to hold down price tag.

Some of the warmest applause during President Clinton’s State of the Union Address came when he pledged to make welfare reform a top priority in 1994, launching a process designed to transform public assistance into a “second chance, not a way of life.”

But the initial enthusiasm may wane when the repair estimates come in: Clinton’s reform plan is expected to cost $5 billion to $7 billion a year by the time it is fully phased in, senior Administration officials said Wednesday.

As Clinton learned on the campaign trail, proposals to get the poor off the dole are always popular with middle-class taxpayers. Yet as momentum builds for welfare reform, one of Washington’s dirty little secrets will soon become apparent--the current system may not work well, but it’s relatively cheap.

Conservatives and other critics of the existing system who view welfare reform as a way to reduce federal spending on the poor may be in for a rude awakening.

“The paradox is that ending welfare as we know it will cost much more than the existing system,” said one senior congressional budget expert who asked not to be named. “I think there is an increasing realization in Congress and in the public at large that it is cheaper to give people money and send them on their way than it is to give them money, give them a GED (high school equivalency degree), give them child care and give them job training.”

The costs of reform have proved to be the critical stumbling block for the Administration’s welfare reform task force, which is charged with finding a cost-effective way to wean recipients off welfare after two years. It is scheduled to unveil its plan as early as March.

The White House must find offsetting spending cuts to pay for the program. Faced with those pressures, the task force has been scrambling to find ways to scale back its proposals, target them more carefully or phase them in more slowly in order to keep the expenses down.

Administration officials stressed that they believe they can fund the program at between $5 billion and $7 billion a year, which would keep the initiative close to the original estimates that Clinton used for his welfare proposal during the 1992 presidential campaign.

“We are further along on coming to grips with the cost problem than most people realize,” said one Administration official. But to pay for it, the official added, the Administration will be forced to propose politically controversial spending cuts in other entitlement programs, such as food stamps, Medicare or Medicaid, a move that is certain to spark an intense battle on Capitol Hill.

Yet almost any major reform effort the Administration unveils would cost much more than the current system.

The government would subsidize jobs for people who get off welfare, and provide “workfare” programs to create public works jobs to pay for continued income assistance for those who cannot find work on their own after two years.

Day care would be provided for single mothers, while training, educational opportunities and job placement programs would be expanded to help others get off welfare before the two-year limit runs out.

Each of those benefits carry high price tags. The Congressional Budget Office estimates that providing day care for the children of welfare recipients would add $3,000 to the cost of keeping a family on welfare, while administering public workfare jobs would add another $3,300 per job.

Those costs would come on top of the continued welfare support of $5,100 per family under Aid to Families With Dependent Children, the basic existing welfare program.

Thus, Administration officials acknowledge, moving a single mother from welfare to workfare could more than double the government’s costs. And that doesn’t count food stamps and public housing. Roughly 2.5 million families who are currently on welfare have been receiving benefits for more than two years, a figure that shows the enormous potential costs of reform.

Analysts now say that the White House, in order to hold down costs, may impose the two-year time limit only on new welfare recipients or teen-agers. Such a restricted reform might be paid for by limiting benefits for non-citizens.

And the Administration is certain to emphasize relatively inexpensive reforms, such as job placement services and tougher enforcement efforts against fathers who don’t pay child support, which theoretically would help motivate welfare recipients and infuse them with a greater sense of personal responsibility.

Yet even those moves won’t make reform as cheap as the current system. In fact, benefits under the Aid to Families With Dependent Children program have fallen 30% to 40% over the last 20 years because they have not kept up with inflation.

Contrary to popular belief, welfare, with a total annual price tag of $24 billion out of a government budget of $1.3 trillion, is not to blame for the bloated federal budget deficit.

“There is no question that reform is going to be more expensive than what we have now,” said Judy Gueron, president of Manpower Demonstration Research Corp., a New York firm involved in welfare reform research. “So that leaves us with the challenge of finding ways of getting as many people off welfare before the two-year time limit runs out.”