When Congress enacted welfare reform legislation in 1996, its goal was to move low-income families from long-term dependence on welfare benefits toward self-sufficiency. States were encouraged to spend less money on cash benefits and more on child care, transportation and job search assistance, as well as transitional Medicaid benefits for families moving into the low-wage labor force.
States have generally done a good job of taking up this challenge. But some states have faced a bigger challenge than others. Because funding allocations to states under the new Temporary Assistance to Needy Families, or TANF, block grant were based on what states spent under the old Aid to Families with Dependent Children, or AFDC, program, wealthier states generally received far more dollars for each low-income family they are trying to serve.
In 2002, for example, Texas will receive only a little more than $300 per child in a low-income (less than 125 percent of the federal poverty line) family to provide work supports and cash assistance for those who still need it—barely one-third the $885 received in the median state. Six other states (Alabama, Arkansas, Idaho, Louisiana, Mississippi and Nevada) will also receive less than $500 for each low-income child. But five states will receive more than $2,000 per low-income child, and 13 states more than $1,500.
Funding differences clearly matter: The generosity of state policies for both income supplements to low-income families and state funding for child-care assistance are closely tied to the availability of federal funding. States like Texas simply can’t afford to be as generous in these policies as states like Connecticut. Thus it is not surprising that the 10 states with the lowest level of block grant funding per low-income child spent an average of only $79 in TANF funds on child care in 2000, while the 10 states with the most generous funding spent an average of $367.
There is no moral justification for the current TANF formula for allocating funds to the states, which gives vastly more resources per low-income family to wealthy states than to poor ones. Defenders of the status quo instead offer two justifications. First, they argue that any tinkering with the current allocation of funds could set off a huge formula fight, imperiling the overall funding level for TANF. Second, they argue that large grants should be given only to states that showed a political and financial commitment to support low-income families under AFDC—states that did not make that commitment in the past would probably not be willing to help poor families now.
We believe these concerns are misplaced, for two reasons. First, most legislators understand that TANF is no longer primarily a system of cash assistance for the non-working poor, but rather an important tool for aiding transitions to self-sufficiency for working families. This latter mission has been politically popular among many states, including states that spent relatively little under AFDC. Second, formula fights are commonly resolved by adding resources to placate aggrieved states, not by subtracting from the size of the total pot. And in the case of TANF, the grievances could not be more legitimate.
It is, nevertheless, important to find a fund allocation mechanism that will widely be seen as fair and that will not be seen as harming better-off states. In today’s tight budgetary environment, chances for immediately eliminating the unfairness of the current funding formula are slim. Just bringing every state with a low grant per low-income child up to that of the median state would cost the federal government $2.3 billion in fiscal year 2002. But it is important to make a start in this year’s TANF reauthorization bill, with a goal of bring all states up to the current median within five years. For states that do want to do more but have been handicapped by lack of resources—and for the low-income families in those states—adjusting the TANF allocation formula would be a critical step toward moving those families into the economic mainstream.