Whither Welfare Reform and Working Families? The Federal Debate and the States

Margy Waller
Margy Waller Visiting Fellow, Economic Studies and Metropolitan Policy, The Brookings Institution

November 14, 2004

My assignment this morning is to speculate about the prospects for welfare legislation and related spending decisions in the coming year.

I will refer to the 1996 legislation as the federal welfare law, but I want to note here that the Temporary Assistance for Needy Families (TANF) block grant to states is no longer primarily used to fund what we have traditionally thought of as welfare: cash assistance to the unemployed. TANF is more working poor family block grant, than welfare block grant.

The reauthorization of TANF is now over two years late — the original law expired in September 2002. Congress has extended it a number of times, most recently through March 2005. The House has twice passed a bill that essentially puts a rubber stamp on the administration’s proposal. In the Senate, two bills have passed the Senate Finance Committee — one a bipartisan bill under the leadership of Democrats, and a Republican bill passed after the Republicans took back the Senate. Neither of these bills passed the Senate.

The slate has been wiped clean for the 109th Congress starting in January. We have no reason to think that the Bush administration will propose anything other than the package it originally put forward in early 2002.

The president’s proposal would increase state obligations to have more cash assistance recipients enroll in work activities for more hours than is required under current law. If that’s happens, we expect states will have to increase their spending on work activities and child care for the children of those parents.

Where will the money come from to pay these additional costs? Nationally, states have been spending more than their annual block grant as they use up the accumulated savings from reduced spending on cash assistance that resulted from caseload decline. States are not likely to raise taxes to spend more on these programs, so they would have to reduce spending on the support services to low-income working families that they have created and expanded with caseload reduction savings.

Primarily, this means cuts to child care. Yes, cuts beyond the reductions that have already occurred in state after state in an attempt to balance state budgets, deal with increasing cash assistance caseloads, and cope with the end of the accumulated savings from caseload decline.

Of course, many states have implemented other work support programs with TANF that are already suffering from cuts: flexible grants to counties, transportation, education and training, and other services. These services face additional cuts or elimination if the proposed work requirements become law.

Why are we having a debate about additional work requirements? My own theory is that the current administration wants to get the federal government out of the business of supporting low-income working families. The cost of “making work pay” turns out to be significantly more than the block grants to states currently provide.

Just child care alone needs a massive new investment in order to begin to meet the existing need. Adding meaningful transportation, education, training, housing, and income supports would create additional pressure on the federal budget. In the current deficit environment with the ongoing costs of war, and a desire in the administration to continue tax cuts, we’re not likely to see proposals to increase spending in this area, with the possible exception of child care. Quite the contrary, we can expect to see proposals for significant cuts in domestic discretionary spending on social services. The Bush administration has already taken steps in this direction.

How did the states come to create new work support services for low-income families in the first place?

No one anticipated the significant increases in work by single mothers, or caseload decline of more than 50 percent after passage of the welfare law. But, as a result of the decline — combined with the law’s definition of work participation rates, as well as the Clinton administration’s rulemaking — the states have been able to use the savings from caseload decline to support those working poor families.

In 1997, after the federal welfare law passed, states were spending about 75 percent of the block grant on checks, or cash assistance, to welfare recipients. Recently, as a result of the caseload decline in the late 1990s, states have spent closer to 40 percent of the block grant on cash checks.

Unexpectedly, a large portion of the block grant was available to pay for other social services to needy families.

It’s my bet that there are some conservatives who have noted the increase in spending for work supports and want to put a stop to it before the pressure to more adequately fund these popular services becomes a political problem. That’s why they’re promoting an expensive addition to the cost of running a program of temporary cash assistance.

Of course, some of the architects of the President’s proposal also believe that stricter work requirements will further reduce the caseloads. If states strictly followed and enforced new additional hours requirements, these administration members and their outside advisers may be right.

In fact, many state and local governments have little information about how many hours welfare recipients are participating in work activities. And when the work requirements are strictly observed, some program operators assert that working poor parents have a very difficult time participating for more than 30 hours a week.

If the federal law promotes a new requirement of participation for more than 30 hours per week, I believe we can expect that some parents will fail — this isn’t surprising when we know that many of the long-term recipients are struggling with the care of young children in the face of inadequate transportation, addiction, mental health problems, and other barriers.

Furthermore, analysis of welfare caseloads suggests that program design or administration has already contributed to caseload decline. In the mid-1990s, over 80 percent of all families eligible for cash assistance got it, while in the most recent report to HHS, less than 50 percent were getting help.

It’s a fair question to ask why federal decisionmakers would choose to make this particular change in the law when there is no evidence at all that increasing work hours will result in better outcomes for families. Furthermore, paying for these new work programs will force a reduction in services proven to improve employment and family outcomes — services like child care and transportation assistance.

Statements by proponents of the increases — in the administration and on the Hill — make it clear that they believe the first priority — if not the only priority — of the block grants should be to provide support and services to cash assistance recipients, not working poor families struggling to stay off welfare.

This is a fundamental change from the direction we were headed at the end of the Clinton administration. While no one I know would say that the 1996 bill is perfect, policymakers and taxpayers willingness to provide significant (if still inadequate) supports to low-income families is a very positive outcome of the law.

The current administration appears to prefer a significant shift in direction away from the working poor to a limited focus involving work requirements, marriage promotion, and time limits for welfare recipients.

Frustrated about the failure to pass such a bill in 2004, the administration and some key Congressional staff have threatened that the block grant would be cut in 2005. And they are taking steps to bolster their argument for two possible outcomes:

1) Forcing states to spend more of the block grant on work activities for current cash assistance recipients; or
2) Cutting the block grant.

They’ve asked General Accounting Office (GAO) to update its 2001 report on state spending of the TANF block grant. In 2001, GAO analyzed state spending decisions in 10 states — California, Connecticut, Colorado, Louisiana, Maryland, Michigan, New York, Oregon, Texas, and Wisconsin — with a particular focus on the question of “supplantation”, replacing state spending with federal grant funds.

GAO concluded:

“In examining specific state funding decisions, we found that supplanting
was a common budget practice among the 10 states in our study. At the
same time, looking at the broadest level of TANF-related social services
shows that over time most states have maintained or even increased their
own investment to address the overall needs of low-income families. The
effect of state budgetary decisions on the fiscal balance between federal
and state governments differed depending on the range of programs we
analyzed. The greatest impact was felt in basic welfare services—most
states reduced their own spending and shifted more federal funds into
those programs. However, since welfare reform, the effect of states’
decisions has been to shift resources from this narrow category to support
the broadest array of programs addressing the goals of the TANF program;
nearly all states increased total funding in real dollars for these programs,
including health care and child welfare services.”

At the same time, the Congressional Research Service is undertaking a fifty-state review of TANF block grant spending by reviewing state reports filed with the federal Department of Health and Human Services.

And finally, next summer Brookings will release the results of a several-year project reviewing state spending decisions in the TANF and child care block grants in three states — Wisconsin, Ohio, and Pennsylvania.

Some congressional staffers expect GAO to find a significant shift in the spending — away from work related activities and into child welfare programs. Some staffers have referred to the work-related activities as “core” TANF programs. Presumably, other social services would be “non-core”.

State officials object to this framing, pointing out that the law has four purposes all eligible for TANF funding:

 provide assistance to needy families so that children may be cared for in
their homes or in the homes of relatives;
 end the dependence of needy parents on government benefits by
promoting job preparation, work, and marriage;
 prevent and reduce the incidence of out-of-wedlock pregnancies; and
 encourage the formation and maintenance of two-parent families.

Also, as the earlier GAO report noted, in 2000, states were under considerable pressure to spend down accumulated TANF balances that resulted from the significant and unanticipated caseload decline, coupled with uncertainty about spending prior to the issuance of final regulations by the Clinton administration. Several state officials have recently recalled the letter sent by Nancy Johnson, a republican congresswoman from Connecticut and a key player in TANF administration, exhorting states to spend the TANF block grant or expect to see it cut by Congress.

What happens next may depend on the answers to these questions:

Will members of Congress be comfortable criticizing welfare reform implementation, as the staffers who dreamed up the GAO request seem to desire? So far, most members have been happy to take credit for the success of the 1996 legislation — even as they’ve been unable to agree on the next steps for reauthorization.

Will states object to the creation of a new definition of fundable services called “core” activities that was not part of the original deal to end the welfare entitlement and create flexible block grants?

Will members of Congress pursue a change in the work activities requirements as way to force states to withdraw funds from child welfare programs or child care?

Will states move in advance of Congress to change the use of their block grant funds out of fear of a change in the federal law? Despite the fact that the President has been unable to pass legislation supporting his proposed Marriage Initiative, many states and localities have started such programs already.

Will any stakeholders reconsider one of the primary notions of the 1996 welfare law: block grants are the best way to fund federal priorities in supporting low-income families?

Will the contemplated cuts and changes to the TANF block grant have an impact on other block grant proposals introduced in the last Congress: housing, Medicaid, Head Start, workforce development, food stamps, child welfare, and unemployment insurance?

Will the debate over TANF send signals regarding the federal policymakers’ commitment to this broader set of work supports for low-income families?

Will past be prologue again? Historically, Congress has either cut block grants or added new strings as federal goals shifted.

In the case of TANF, it appears that both cuts and new state mandates are possible, as Congress presses GAO for information.