Order Code IB93034
CRS Issue Brief for Congress
Received through the CRS Web
Welfare Reform: An Issue Overview
Updated January 16, 2001
Vee Burke
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress
CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
System of Family Welfare
TANF Trends and Data
The 1996 Welfare Law, P.L. 104-193
Replacement of AFDC by Temporary Assistance for Needy Families
Medicaid and TANF
Child Care
Alien Eligibility for Welfare
Food Stamp Revisions
Social Services Block Grants
TANF Issues
Reauthorization of TANF
Definition of “Work Activities” and the Role of Education
Application of Minimum Wage Laws
Work Participation Rates and Penalties
“Charitable Choice” and Privatization
Welfare-to-Work (WTW) Grants
Transfer of TANF Funds
Victims of Domestic Violence
Transportation for TANF Recipients
Housing Vouchers for TANF Recipients
Tax Credits for Hiring Welfare Recipients
Individual Development Accounts (IDAs)
Unspent TANF Funds
Child Support Collections
Final TANF Regulations
Federal Jobs for Welfare Recipients
TANF Bonus Funds
LEGISLATION
FOR ADDITIONAL READING
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Welfare Reform: An Issue Overview
SUMMARY
The program of Temporary Assistance
On December 16, the Department of
for Needy Families (TANF), enacted in Au-
Health and Human Services announced award
gust, 1996, as a replacement for Aid to Fami-
of $200 million to 28 states for high perfor-
lies with Dependent Children (AFDC), provid-
mance in FY1999 on TANF work measures:
es fixed grants ($16.5 billion annually through
job entry, job retention, and earnings gain.
FY2002) for state-designed programs of time-
limited and work-conditioned aid to families
Under new rules, states may guarantee
with children. The 107th Congress must decide
three months of unreduced food stamps to
what changes, if any, to make in reauthorizing
families leaving TANF (November 21 regula-
TANF.
tion) and apply to all food stamp households
their TANF limits on auto value, if higher than
To promote work, state TANF programs
food stamp limits (P.L. 106-387).
use tougher work sanctions, “Work First”
policies, financial rewards for work, and diver-
In FY1999, state TANF programs spent
sion of applicants from enrollment. Family
49% of $22.9 billion in federal funds available
welfare numbers have plunged 50% since
to them (including carryovers from 2 earlier
TANF was created, employment by single
years) and transferred 16%. Spending of
mothers has soared, and poverty of mother-
federal TANF funds totaled $11.3 billion, two-
headed families, although still very high, has
thirds of which went for cash and work-based
declined.
payments ($6.5 billion) and work activities
($1.2 billion). Addition of state outlays
The 106th Congress changed welfare. It
brought total FY1999 TANF spending to
liberalized eligibility for the Welfare-to-Work
$21.7 billion, slightly above the FY1998 level.
(WtW) program, grants added to TANF for
disadvantaged recipients, and gave states 2
At the start of FY2000, $2.2 billion of
more years in which to spend WTW funds; it
TANF funds remained unspent. Also unspent
extended application of charitable choice rules,
was $1.7 billion in WtW formula grants to help
which forbid discrimination against religious
severely disadvantaged TANF recipients.
organizations as service providers and were
Funds have built up while the caseload has
first applied to TANF) to substance abuse
shrunk. In June 2000, at 2.2 million families,
treatment under the Public Health Service Act.
numbers were the smallest since 1970.
In making FY2001 appropriations, it increased
funding for the Child Care and Development
Issues that may arise when Congress
Fund (CCDF) to $2 billion; provided $1 mil-
takes up reauthorization include the level and
lion to promote fatherhood; provided $25
allocation of funding, the role of education and
million for demonstration Individual Develop-
training, required state funding, waiver of rules
ment Accounts (IDAs) for TANF families and
for domestic violence victims, data reporting,
others with low income. Congress also re-
circumstances of TANF “leavers,” and the
stored the option for states to transfer up to
implicit conflict between time limits and work
10% of TANF funds to the Social Services
incentives that enable working recipients to
Block Grant (SSBG) and funded SSBG at
remain on welfare at higher earnings levels.
$1.725 billion (down $50 million from
FY2000).
Congressional Research Service ˜ The Library of Congress
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MOST RECENT DEVELOPMENTS
On January 11, 2001, the Labor Department issued final regulations for the Welfare-
to-Work grant program. On December 16, HHS announced award of $200 million to 28
states for high performance in FY1999 on TANF work measures: job entry, job retention,
and earnings gain. On December 15, Congress passed the Consolidated Appropriations act
for FY2001, (P.L. 106-554). The new law restores the option for states to transfer up to 10%
of TANF funds to SSBG; gives states 2 more years in which to spend WtW funds; eliminates
the WtW high performance bonus, appropriates $1 million to two national organizations that
seek to promote “fatherhood;” increases funding from $10 million to $25 million for IDAs
under the Assets for Independence Act and requires means-tested programs to ignore
amounts in these IDAs; and forbids discrimination based on education and training of its
personnel against a religious organization as a provider of substance abuse treatment under
Title V of the Public Health Services Act if the training is substantially equal to that required
by state/local rules. The Act omits the Clinton budget proposal to freeze TANF supplemental
grants for (16 states) at their 1998 level.
BACKGROUND AND ANALYSIS
System of Family Welfare
Enrollment in AFDC/TANF has been falling since spring of 1994. The June 2000 TANF
caseload held 2.208 million families, down 2.9 million (57%) from the March 1994 record-
high level (5.084) and the smallest since 1970. Recipients numbered 6.3 million. Average
monthly caseloads in FY1999 fell 46% below the FY1995 average; for states with so large
a drop the caseload reduction credit will erase the FY2000 all-family work requirement of
40%. Food stamp rolls also have dropped sharply. In December 2000, 17 million persons
were enrolled, 39% fewer than the peak number of March 1994 (28 million). According to
the Kaiser Commission on Medicaid and the Uninsured, enrollment of “families and children
and pregnant women” in Medicaid declined 1.1% from December 1997 to December 1998,
but climbed 5% in the next year. TANF enrollment normally qualifies a family also for food
stamps and free school meals, as did AFDC. However, TANF does not confer automatic
eligibility for Medicaid. A TANF family must be given Medicaid only if it would qualify for
AFDC if that program still were in existence. The EITC is the largest form of income-tested
federally funded cash aid for families (see CRS Report 94-399). The labor force participation
rate of women maintaining families with children soared 21% from 1994 (62%) to 1999
(75%). The 1999 annual report of the Council of Economic Advisers indicated that up to
60% of the increase in work by single mothers since 1984 could be attributed to EITC
expansions and 30% (of the 1984-1996 increase) to changes in the welfare system. In August
1999 CEA estimated that about one-third of the 1996-1998 AFDC-TANF caseload drop was
due to Federal and state welfare policy changes, from 8% to 10% to the strong economy,
10% to the higher minimum wage, and from 1% to 5% to the lower real value of cash welfare
benefits. FY1999 estimated spending for low-income children and their families by selected
major income-tested programs that give cash, food, medical, and housing aid reached $143.9
billion, up $12.3 billion (9%) from FY1998. (Table 1). Most of the increased spending was
for medical aid, up $10.4 billion, and housing aid, up $1.5 billion.
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Table 1. Estimated Income-Tested Outlays for Children and Their Families
from Selected Major Programs, FY1998 and FY1999a
Federal Funds
State-local Funds
Recipientsb
($ in billions)
($ in billions)
(in millions)
FY1998
FY1999
FY1998
FY1999
FY1998
FY1999
Cash aid
$46.6
$47.0
$10.2
$10.4
—
––
(TANF)c
(11.3)
(11.3)
(10.2)d
(10.4)d
8.9e
7.2e
(EITC)f
(30.4)
(30.8)
0
0
19.4
19.4
(SSI) (children
only)
(4.9)
(4.9)
N.A.
N.A.
.89
.85
Food benefits
28.0
27.8
N.A.
N.A.
—-
––-
(Food stamps)g
(16.5)
(15.8)
(1.1)
(1.1)
17.0e
15.5e
(Subsidized meals)h
(7.6)
(8.0)
N.A.
N.A.
17.0
17.2
(WIC)
(3.9)
(4.0)
N.A.
N.A.
7.4e
7.3e
Major medical aid
16.0
22.5
12.8
16.7
30.0
32.5
(Medicaid)i
(15.9)
(21.5)
(12.8)
(16.2)
29.0e
30.5e
(S-CHIP)j
(0.1)
(1.0)
N.A.
(0.5)
1.0
2.0
Major housing aid
16.9
18.4
0
0
4.8
4.8
(Public housing and
Section 8)
(12.1)
(13.8)
k
k
(4.7)l
(4.7)
(USDA programs)m
(4.8)
(4.6)
0
0
(0.1)n
(0.1)
a. Includes administrative costs where available. Excludes education, job training, Title XX social services,
Child Care and Development Block Grant (CCDBG), energy aid, and numerous smaller programs.
b. Caution: Average monthly number of individuals, except: subsidized meals, estimated daily average
participation in school meals and child care programs by children from lower-income families; Medicaid,
yearly total estimates of enrollment; FY1998 S-CHIP, enrollment in December 1998; EITC, yearly total
number of families; and housing, number of households at end of year.
c. Of total expenditures reported for TANF, 62% were for cash benefits; the rest were for administration, child
care, work program activities, supportive services, and unclassified “other” uses.
d. Spending countable toward the TANF maintenance-of-effort (MOE) requirement except expenditures that
also could be counted toward the CCDBG MOE.
e. Includes parents. Child totals: food stamps, 10.7 million in FY1998, 10.2 million in FY1999; WIC, 5.6
million each year; TANF, 6.3 million in FY1998, 5.2 million in FY1999; Medicaid, 20.2 million and 21.6
million, respectively.
f. Credit earned in calendar year preceding the fiscal year (example, CY1998 for FY1999). Direct payments,
$24.4 billion for CY1997; $ 26.3 billion for CY1998. Reduced tax liability, $6.0 billion and $4.5 billion,
respectively.
g. Includes Puerto Rico’s nutritional assistance program
h. Includes income-tested parts of school lunch, school breakfast, and child care food programs; also summer
food service program. (Excludes cost of commodities.)
i. Spending estimates are for the year preceding the one named.
j. S-CHIP (State-Children’s Health Insurance Program) began in FY1998.
k. Localities accept below-tax payments in lieu of property taxes on public housing projects.
l. Based on estimated percentage of households with children: FY1998, public housing, 45 %; Section 8, 66
%; FY1999, public housing, 43%; Section 8, 68%.
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m.. Subsidized loans to low-income persons for homeownership (Section 502) and rental aid (Sections
515/521).
n. Represents housing units, each of which generally can accommodate one family. USDA does not collect
data on children in households.
TANF Trends and Data
To promote work, TANF state programs use tougher work sanctions, “Work First”
policies, financial rewards for work, and diversion of applicants from enrollment. Welfare-to-
work efforts have urgency because the law restricts federally funded TANF aid for an adult
to 60 months (lifetime limit), and many states impose shorter limits. Nationally, caseloads
continue a decline that began in 1995. Persons now on the rolls include rising proportions
of long-term recipients and minorities. Nationally, TANF has more than doubled the fraction
of adult recipients who have earnings (28% in FY1999, compared with 11% in FY1996); their
FY1999 earnings averaged $598 monthly. Cash benefits in FY1999 averaged $357 monthly
(98% of TANF families also received medical assistance; 81%, food stamps; 13%, subsidized
housing; and 4%, child care). Available data indicate that in some states from 50-65% of
persons who leave the rolls have jobs then or a short time later (compared with a general
work exit rate of almost 50% before TANF) and that the jobs generally pay wages around
$6.00 to $7.50 per hour. See CRS Report 98-369. The 1999 poverty rate among children
in female-headed families (with no spouse present) was 41.9%, compared with 49.3% in 1996
and 52.9% in 1994, when AFDC numbers were record high. Combined Federal and state
TANF spending (excluding state child care funds that are countable also toward required state
spending for the child care block grant) totaled $21.7 billion in FY1999, up slightly from
FY1998 ($21.5 billion), but down 23% from comparable FY1996 spending for AFDC and
related programs ($28.2 billion). As of September 30, 1999, states had an unobligated TANF
balance of $2.2 billion.
The 1996 Welfare Law, P.L. 104-193
(As modified in 1997 and 1998 by P.L. 105-33 and P.L. 105-185)
Replacement of AFDC by Temporary Assistance for Needy Families
TANF is a fixed block grant for state-designed programs of time-limited and work-
conditioned aid to families with children. Enacted on August 22, 1996, it repealed AFDC,
Emergency Assistance for Needy Families, and the Job Opportunities and Basic Skills
Training (JOBS) program. It combines recent federal funding levels for these three programs
into a single block ($16.5 billion annually through FY2002) and entitles each state to the sum
it received in a recent year. It also provides an average of $2.3 billion annually in a new child
care block grant (more than double the FY1996 federal funding level for AFDC-related child
care). The TANF law appropriates extra funds for loans, contingencies, bonuses for “high
performance” and for reducing out-of wedlock births, and supplemental grants for states with
historically low federal welfare funding per poor person and/or rapid population gain. (Citing
the caseload decline, the President’s FY2001 budget proposed to freeze supplemental grants
at their FY1998 level, but Congress rejected this in passing H.R. 4577.) As amended by the
Balanced Budget Act of 1997 (P.L. 105-33), TANF law also provided a $3 billion program
in FY1998-FY1999 for welfare-to-work (WtW) grants, most of which require state cost
sharing, to help states achieve required work participation rates.
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TANF greatly enlarged state discretion in operating family welfare, and it ended the
entitlement of individual families to benefits. Under TANF States decide what categories of
needy families to help and whether to adopt financial rewards/penalties to induce work and
other desired behavior. They set asset limits (pre-TANF law imposed an outer limit), and
continue to set benefit levels. TANF explicitly permits states to administer benefits and
provide services through contracts with charitable, religious, or private organizations, a
provision that has come to be known as Charitable Choice.
Attached to the TANF block grant are some federal conditions. To receive full grants,
states must achieve minimum work participation rates and maintain at least 75% of their
“historic” level of state welfare funding (FY1994 state spending on AFDC and AFDC-related
programs), increased to 80% if the state fails the work participation rate. States must require
parents and other caretaker recipients to engage in work after a maximum of 24 months of
benefits (work-trigger time limit) and must impose a general 5-year time limit on federally-
funded benefits (benefit time limit). They may exempt single parents with a child under age
1 from required work (and from the calculation of work participation rates). In FY2001, 45%
of all families with an adult recipient must work (including 90% of families with two parents);
the all-family rate peaks at 50% in FY2002 (these rates are to be lowered for caseload
declines from FY1995 levels). States are forbidden to give TANF aid to unwed parents under
18 unless they (and their children) live under adult supervision, and, if high school dropouts,
attend school. States may continue pre-TANF state reforms begun under waivers from
AFDC rules (until the waivers expire) even if terms are inconsistent with the new law. (For
TANF provisions, as compared to AFDC, see CRS Report 96-720; for summaries of state
TANF programs, see CRS Report RL30695 and CRS Report RS20708.)
Medicaid and TANF
Although the 1996 law ended AFDC, it retains AFDC eligibility limits for Medicaid use.
It requires states to provide Medicaid coverage and benefits to children and parents who
would be eligible for AFDC cash aid (under July 16, 1996 terms) if that program still existed.
For this purpose, states may lower AFDC income and resource standards to those in effect
on May 1, 1988, and may increase them by the percentage rise in the consumer price index
since July 16, 1996, and may change the method of determining income and resources. The
law also requires states to extend medical assistance for 12 months and four months,
respectively, to those who lose TANF eligibility because increased earnings or child/spousal
support lift their income above July 1996 AFDC limits. See CRS Report RS20552.
Child Care
The 1996 welfare law created a mandatory block grant for child care to low-income
families. Individual states are entitled to what they received for AFDC work-related child
care, transitional child care, and at-risk child care in a recent year. States that maintain the
higher of their 1994 or 1995 spending on these programs are entitled also to extra funds at
the medicaid match rate. Appropriated for the block grant is $13.9 billion over 6 years, more
than $4 billion above spending levels estimated by CBO for the replaced programs. The law
also provides another $7 billion in discretionary funding under an expanded Child Care and
Development Block Grant (CCDBG). The combined funding streams provided by the 1996
law are referred to as the Child Care and Development Fund (CCDF). States must use at
least 70% of the entitlement money for welfare families that are attempting to become self-
sufficient through work, or that are working but at risk of becoming dependent on welfare.
The new block grant program took effect October 1, 1996. For state CCDF programs, see
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CRS Report 98-875. The President’s FY2001 budget proposed to increase CCDF funding
to $2 billion, $0.8 billion above the FY2000 level, and Congress appropriated this sum. See
CRS Report RL30021.
Alien Eligibility for Welfare
The 1996 law barred legal immigrants from Food Stamps and SSI unless they have
worked 10 years or are veterans, certain active duty personnel, or families of veterans or
active duty personnel. However, Congress since has restored SSI and food stamps for some
immigrants. The 1997 Balanced Budget Act (P.L. 105-33) restored SSI for legal aliens
enrolled on August 22, 1996, when the ban was passed, and those who were here then and
later become disabled; and P.L. 105-185 has restored food stamp eligibility for some
immigrants, (see Food Stamps). The 1997 law continued a state option to extend TANF,
Medicaid, and Title XX social services to legal immigrants who arrived before the 1996 law
and (for persons arriving later) a ban on these and many other need-tested benefits during
their first 5 years of U.S. residence. For a summary, see CRS Report 96-617. At passage,
CBO estimated that the 1996 alien provisions would reduce direct federal outlays over 7 years
by $23.7 billion, but P.L. 105-33 and P.L. 105-185 have been estimated to restore more than
half of this over 5 years ($9.5 billion in SSI, $2 billion in Medicaid and $800 million in food
stamps). The 107th Congress failed to pass FY2001 and FY2001 budget proposals to restore
SSI (and derivative Medicaid) to legal immigrants who came after August 1996, have been
here 5 years and become disabled after entry; and to permit states to extend Medicaid to some
legal immigrant children and pregnant women who entered after August 1996 (see CRS
Report RS20061).
Food Stamp Revisions
The 1996 law expanded states’ food stamp role, added new work rules, restricted
benefits, and barred eligibility for most legal aliens. At passage, net federal food stamp outlay
savings over 5 years were estimated at $23.3 billion. P.L. 105-33 provided $1.5 billion over
5 years for provisions that moderated the new work rule. P.L. 105-33 and P.L. 105-18
dramatically increased funds for food stamp work and training programs and allowed states
to pay for food stamps for persons made ineligible for federally financed stamps by the 1996
law. In 1998, P.L. 105-185 restored food stamp eligibility for immigrant children, aged, and
disabled aliens here before August 22, 1996; it also reduced funding for employment and
training costs (but did not wipe out the 1997 gain) and administrative costs. Congress
rejected a FY2001 budget proposal to restore eligibility for certain legal alien parents of
citizen children. H.R. 4461, passed on October 18, allows states (effective July 1, 2001) to
apply to all food stamp households their TANF rules for vehicle ownership, provided they
are more liberal than food stamp rules (general limit of $4,650 in fair market value); it also
increases benefits for those with high shelter costs. See CRS Report 98-59. The
Administration on November 21 issued a final regulation allowing states to guarantee 3
months of unreduced food stamp benefits to families who leave TANF.
Social Services Block Grants
The 1996 Act reduced the $2.8 billion entitlement ceiling for Social Services Block
Grants (SSBG) under title XX of the Social Security Act by 15% and entitles states to $2.38
billion annually in FY1997-FY2002. However, Congress later appropriated $2.5 billion for
FY1997, $2.3 billion for FY1998, $1.9 billion for FY1999, and $1.8 billion for FY2000.
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Beginning in FY2001, P.L. 105-178 reduced the entitlement ceiling from $2.38 billion to $1.7
billion and decreased to 4.25% the share of TANF funds that states may transfer to SSBG.
See CRS Report 94-953. However, in passing the Consolidated Appropriations Act for
FY2001 (P.L. 106-554) Congress restored the SSBG transfer cap to 10% and appropriated
$1.725 billion (down $50 million from FY2000) for SSBG.
TANF Issues
Reauthorization of TANF
Most appropriations for TANF expire at the end of FY2002. However, two grants end
on September 30, 200l and will require attention by the first session of the 107th Congress:
supplemental grants for 17 states with above-average population growth and/or below-
average federal welfare funding per poor person, and the contingency fund for states that
become “needy.” Pointing to the sharp reduction in welfare rolls, the Clinton Administration
proposed freezing supplemental grants (rather than allowing scheduled increases), but
Congress rejected this proposal. A decision to reauthorize supplemental grants probably
would reopen the question of what conditions should qualify a state for extra funds. The
contingency fund provides capped matching grants for states with high and increasing
unemployment rates or increased food stamps caseloads. A total of $1.960 billion was
appropriated for FY1997-FY2001. To qualify for the fund a state must meet a special high
state spending requirement, and a state’s entitlement cannot be determined until the year is
over. Critics maintain that terms of access are complex and restrictive, and President
Clinton’s FY2000 budget proposed to repeal existing contingency fund authority and create
a new uncapped fund that could “more effectively respond” to an economic downturn.
Reauthorization of the basic program also is likely to raise less pressing issues. Should
the level of funding remain at $16.5 billion annually? Should it be reduced because of
caseload shrinkage? Should the formula for making state allocations of block grant funds be
changed to reflect changes since the program was established? (Current allocations are based
on federal funding received by each state for programs replaced by TANF when the state’s
AFDC caseload was record large). Should the level of required state spending be kept at a
minimum of $10.4 billion annually (75% of each state’s historic spending level)? Should
Congress endeavor to stop states from using TANF dollars to replace state funds used for
non-TANF purposes (known as supplantation)? Should the law be changed to extend
eligibility for federally funded benefits beyond 5 years for families who are working but still
in need? Some have proposed that the federal time limit be suspended during months of
minimum work. See CRS Report RS20766.
Discussed below are other TANF issues: definition of work activities, application of
minimum wage laws, work participation rates and penalties; “charitable choice” and
privatization; WtW grants; transfer of funds; victims of domestic violence; transportation;
housing vouchers; employer tax credits; IDAs; unspent funds; and child support collection.
Definition of “Work Activities” and the Role of Education
What activities are countable in calculating a state’s work participation rate? In contrast
to JOBS, which allowed states to treat postsecondary education as a countable activity,
TANF law includes only three educational activities: vocational educational training (for no
more than 12 months), secondary school attendance (or equivalent) and education directly
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related to employment (adult high school dropouts and teen-aged parents only). The law now
allows 30% of the persons in all TANF families and in 2-parent TANF families, respectively,
who are treated as engaged in work to consist of persons who are participating in vocational
educational training or who are teenage household heads engaged in schooling (until October
1, 1999, the law placed no limit on the number of teenage household heads who could be
counted as workers by virtue of educational activity). Even though it is not listed as a
countable activity, many state TANF programs now include postsecondary education, as the
sharp drop in caseloads has cut or eliminated the risk of penalty for failing work participation
rates, which are lowered by caseload reduction credits. See CRS Rept. RL30767.
Application of Minimum Wage Laws
JOBS law directed that work hours in community work experience programs (workfare)
be calculated at the minimum wage (higher of the federal or state rate) and specified that
welfare recipients whose wages were subsidized with their benefit were not to be treated as
“employees.” This meant they were not covered by the Fair Labor Standards Act (FLSA),
which sets wage and hour standards. Unlike JOBS law, TANF law is silent on these issues.
Thus, a critical issue is whether or not TANF participants in work programs are held to be
“employees” with “earnings.” Another issue is whether workfare “wages” are subject to
payroll taxes, unemployment insurance and federal income taxes. Over objections of the
National Council of State Human Service Administrators and some governors, but with the
support or organized labor, the administration holds that the FLSA generally applies to
community service and work experience positions. In a May 22, 1997 memorandum, the
Labor Department said most welfare recipients in ‘workfare’ arrangements would be
classified as ‘employees’ under the FLSA’s broad definition and, hence, must receive the
minimum wage rate. It said food stamps could be counted under a food stamp workfare
program or a food stamp work supplementation program (where wages are subsidized by
food stamps) toward meeting minimum wage requirements, but that credit could not be taken
for health insurance or other benefit payments excluded under the FLSA. Congress has acted
on the issue of the EITC for workfare. The Taxpayer Relief Act (P.L. 105-34) disallows the
EITC for TANF payments made to participants in work experience or community service.
On December 18, 1998, the Internal Revenue Service announced that it has decided to
exclude TANF workfare payments from federal income and employment taxes, provided they
meet three conditions: (1) the only payments received by the TANF recipient are received
directly from the state or local welfare agency ( an entity with which a state or local agency
contracts to administer the program would be treated as the state or local agency); (2) the
person’s TANF eligibility is based on need and the only payments for his/her work activity
are funded entirely under a TANF program; and (3) recipients are not required to participate
more hours for their benefit than yield the minimum wage equivalent (hours may not exceed
the TANF grant divided by the minimum wage rate). See CRS Report 97-1038.
How many state TANF programs might be affected by the Administration’s decision that
most workfare recipients are covered by the minimum wage? TANF law sets minimum
average weekly hours of work; for single parents, they started at 20 hours, but rose to 25
hours in FY1999 and to 30 hours in FY2000 ( 2-parent families must work 35 hours weekly).
At the federal minimum wage ($5.15), a 30-hour weekly workfare assignment equates to
$154.50 in benefits ($669 per month). Only in New York (in Suffolk County), Alaska, and
Wisconsin (Community Service program), are TANF maximum benefits for a 3-person family
(as of Jan. 1, 2000) high enough to provide the required amount for 30 hours of work by a
single-parent family. Many of the other states could observe the workfare minimum “wage”
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by adding food stamps to the calculation, but some states would have to increase cash
benefits. Pending bills to raise the federal minimum rate would increase the number of states
whose workfare programs might have to be changed to meet FLSA and IRS standards. Both
Houses of Congress have voted to increase the federal minimum wage to $6.15 an hour, the
Senate over 3 years, the House over 2 years. H.R. 2918 would permit a governor to suspend
federal minimums above $5.15 under certain conditions, including inability to achieve TANF
work participation rates. For more on the minimum wage, see IB10039.
Work Participation Rates and Penalties
The third annual TANF report shows that in FY1999, 15 states, more than double the
1998 number, served two-parent families in separate state-funded programs, which are free
of TANF minimum work targets and time limits. The report says that nationally, 38.3% of all
families with a TANF adult recipient were credited with work in FY1999 (by engaging in a
recognized work activity for a weekly average of at least 25 hours – fewer hours for some
groups). Among two-parent families, who were required to work at least 35 hours, the
participation rate was 54.7%. The statutory minimums for FY1999 were 35% for all families
and 90% for two-parent families, but actual state targets were adjusted downward to give
credit for reductions in caseload from FY1995 to FY1998. All jurisdictions except Guam and
the Virgin Islands achieved their adjusted all-family work rate in FY1999 (some met the
standard without a caseload reduction credit), but 10 of the 38 jurisdictions subject to the 2-
parent TANF work rate failed to do so, even after targets were adjusted for caseload
reduction. Sixteen states were not subject to the 2-parent rate, 15 because the families were
in separate state programs, and one (Vermont) because it is continuing a waiver inconsistent
with TANF work rules. The 10 jurisdictions that failed the 2-parent work rate were Alaska,
Arkansas, Colorado, District of Columbia, Guam, Minnesota, Nebraska, New Mexico, North
Carolina, and West Virginia. For FY1999 work participation rates of each state, see
[http://www.acf.dhhs.gov/news/99rate.htm]. States that fail minimum work participation
rates are subject to a penalty (for first year’s failure, loss of 5% of the TANF block grant, for
second year’s failure, 7% of the grant, with the penalty based on “the degree of
noncompliance”), and under the law they must spend an amount equal to their penalties (in
effect, replacing the lost funds); finally, their required state spending level (maintenance-of-
effort [MOE] requirement) is increased to 80% of its historic level. The law permits states
who fail to achieve work rates to submit a corrective action plan or appeal the penalty on
grounds of reasonable cause. Of the 10 jurisdictions that failed to meet the FY1999 two-
parent work rates, North Carolina and West Virginia accepted their respective penalties of
$3,817 and $127,527. Alaska, Colorado and Guam requested penalty exemption on grounds
of reasonable cause. Arkansas, D.C., Mississippi, Nebraska, and New Mexico filed corrective
action plans (with target dates for achieving required work rates). In final TANF regulations,
HHS said states that offered TANF to non-custodial parents could choose whether or not to
include them in calculating work participation rates of two-parent families.
“Charitable Choice” and Privatization
The 1996 welfare law permits states to “administer and provide services” under TANF,
food stamps, Medicaid, and some other federal programs through contracts with charitable,
religious, or private organizations. However, food stamp and Medicaid law effectively require
eligibility to be determined by a public official. The purpose of what has come to be known
as “charitable choice” is to allow religious organizations to provide services on the same basis
an as any other nongovernmental provider “without impairing their religious character” or
diminishing the religious freedom of recipients. Since 1996, Congress has enacted other
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charitable choice provisions–applying them to grants under the Community Services Block
Grant (1998) and to substance abuse services under Title V of the Public Health Service Act
(Children’s Health Act of 2000). Further, the Consolidated Appropriation Act for FY2001,
passed on December 15, 2000, forbids discrimination against a religious organization (as a
provider of substance abuse services funded by the Public Health Service Act) on the basis
of the education and training of its personnel, provided the training is substantially equal to
that required by state/local rules. The 106th House voted (H R. 4678) to establish fatherhood
grants within TANF and to extend the charitable choice option to them, but the Senate did
not act on its companion bill (S. 3189). In passing H.R. 4577, Congress voted to appropriate
a total of $1 million for FY2001 to two national organizations that seek to promote
fatherhood: the Institute for Responsible Fatherhood and the National Fatherhood Initiative.
See CRS Report RS20712. Using its new privatization authority, Wisconsin has contracted
out the administration of its TANF program (W-2) in some counties.
Welfare-to-Work (WTW) Grants
The basic TANF block grant earmarks no funds for any program component, benefits
or work programs. In response to a presidential budget proposal, the 1997 Balanced Budget
Act established a $3 billion welfare-to-work grant program for FY1998-FY1999,
administered by the Secretary of Labor. It required 75% of funds (after set-asides) to be used
for 33% state matching formula grants, allocated on the basis of state shares of the adult
TANF population and the poverty population; it required the remaining 25% of WtW funds
to be used for competitive grants. By the end of FY1999, all available WtW funds had been
awarded. Over the 2 years, formula grants totaled almost $2 billion, and competitive grants,
$712 million. The original law set aside $100 million for performance bonuses, but they have
been eliminated in two stages (by P.L. 106-113 and H.R. 4577, the Consolidated
Appropriations Act for FY2001). At the start of FY2000, states had spent only $220 million
of their formula grants, and, as requested by the President, Congress extended the WtW
spending deadline (from 3 years to 5 years from the date of award) in passing H.R. 4577 on
December 15, 2000.
As originally enacted, 70% of funds had to be used for the benefit of TANF recipients
(and non-custodial parents) with at least two specified barriers to work who themselves (or
whose minor children) were long-term recipients (30 months of AFDC/TANF benefits) or
were within 12 months of reaching the TANF 5-year time limit or a shorter state time limit.
The target groups had to have at least two of three specified work impediments. WtW
eligibility was liberalized by P.L. 106-113. Effective July 1, 2000, states may incur
obligations for payment from formula grant allotments (and use state matching funds) on
behalf of four new groups: long-term TANF recipients without specified work barriers,
former foster care youths 18 to 24 years old, TANF recipients who are determined by criteria
of the local private industry council to have significant barriers to self-sufficiency, and
custodial parents with income below the poverty line. The new law also changed rules
concerning WtW for non-custodial parents. Eligible under the new rules are noncustodial
parents who are unemployed, underemployed, or having difficulty paying child support,
provided their minor child meets certain standards and the non-custodial parent is in
compliance with an oral or written personal responsibility contract. The expanded eligibility
rules took effect on January 1, 2000 for competitive grants (and, as noted above, on July 1,
2000 for formula grants). However, federal expenditures from formula grants for the newly
eligible groups could not be made until October 1, 2000. Activities that may receive WtW
funds are the conduct and administration of community service or work experience programs;
job creation through wage subsidies, on-the-job training, contracts with providers of
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readiness, placement, and post-employment services, job vouchers for placement, readiness,
and post-employment services, job retention or support services if these services are not
otherwise available; and, added by P.L. 106-113, effective on July 1, 2000, up to six months
of vocational educational or job training. See CRS Report RS20134.
Transfer of TANF Funds
The law allows states to transfer up to 30% of TANF funds to the Child Care and
Development Block Grant (CCDBG) and the Title XX social services block grant (SSBG),
but sets a limit of 10% on the share that can go to SSBG. Cumulative transfers from TANF
awards through the first half of FY1999 totaled $3.5 billion, 9.3% of awards. During FY1998,
states transferred 10.5% of 1998 awards (6.5% to SSBG and 3.9% to CCDBG). P.L. 105-
178 cut the share of funds that can go to SSBG to 4.25%, effective in FY2001, but the
Consolidated Appropriations Act for FY2001, passed December 15, restored the 10% cap.
P.L. 105-200 allows states to use TANF funds, within the overall 30% transfer limit, as state
matching funds for job access grants to provide transportation services to TANF recipients
and ex-recipients, noncustodial parents of TANF children, and those at “risk” of becoming
eligible for TANF. Victims of Domestic Violence
The 1996 law allows states to certify in their TANF plans that they have adopted
standards to screen and identify TANF recipients with a history of domestic violence, refer
them to services, and waive program requirements in some cases. See CRS Report 97-1032.
The Senate several times voted to allow unlimited TANF waivers for victims of domestic
violence and to disregard these persons in computing a state’s work participation rate, but the
House has disagreed. S. 1069 revives these provisions. See Final TANF Regulations for
penalty exemption provision. Also, see CRS Report RS20662.
Transportation for TANF Recipients
The 1998 transportation act (P.L. 105-178) authorized $750 million in 50% matching
funds over 5 years for matching grants for job access and reverse commute grants for welfare
recipients, of which no more than $10 million annually can be for reverse commute projects.
It said funds were to be used to develop services to move welfare recipients and other low-
income persons (income not above 150% of the poverty level) to and from jobs and work-
related activities. As noted immediately above, states may use TANF funds, within limits, as
state matching funds for these grants. Appropriations for FY1999 and 2000 were $75 million
annually (half the amount sought by the Administration). The FY2001 budget again proposed
$150 million, but Congress provided $75 million in passing H.R. 4577. On May 13, 1999,
the Department of Transportation (DOT) announced award of $71 million for 170 job access
and reverse commute projects, and on October 19, 2000, it announced the second round of
awards–$73 million for 216 communities in 39 states and the District of Columbia. For
details of FY2000 awards, see [http//www.fta.dot.gov/library/legal/fr1019000.htm].
Housing Vouchers for TANF Recipients
The President’s FY1999 budget proposed tenant-based housing assistance to help
eligible TANF families move to work ($283 million, sufficient for 50,000 vouchers).
Congress included these vouchers in the FY1999 HUD appropriation act (P.L. 105-276) but
specified that at least $32 million of the $283 million total be made available for initiatives in
eight localities (Anchorage, Charlotte, Cleveland, Kansas City, Miami/Dade County, New
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York City and two counties in California and Maryland). The law made sweeping changes
in subsidized housing, including: Reducing the share of units reserved for very poor families
in an effort to achieve an income mix; requiring housing agencies to set minimum rents (not
above $50 monthly); allowing public housing tenants to choose a flat rent or income-adjusted
rent; forbidding housing agencies to increase the rent for one year of TANF recipients (or
some other previously unemployed persons) who take a job; and requiring adult public
housing residents, for 8 hours monthly, to participate in a self-sufficiency program or in
community service. See CRS Report 98-868. The FY2000 budget included $427 million for
WtW housing vouchers, a 50% increase from FY1999. However, the FY2000 appropriation
provided no increase for WtW housing vouchers. The FY2001 budget requested $183 million
for 32,000 new WtW housing vouchers, but the FY2001 appropriation (P.L. 106-377) denied
new WtW housing vouchers. For a general discussion of housing for the poor, see CRS
Report 98-860.
Tax Credits for Hiring Welfare Recipients
In 1997, Congress established a Welfare-to-Work (WTW)Tax Credit for hiring persons
who had received AFDC/TANF for 18 months. It also extended an existing credit called the
Work Opportunity Tax Credit (WOTC)for hiring certain persons, including those who had
received TANF for 9 months. In late 1999, Congress extended both credits retroactively and
through December 31, 2001 (P.L. 106-170). See CRS Report RL30089. The Consolidated
Appropriations Act for FY2001, passed December 15, 2000, adds “renewal communities” to
the areas where a tax credit is offered for hiring resident youth.
Individual Development Accounts (IDAs)
The 1996 law permits states to use TANF funds to carry out a program of individual
development accounts (IDAs) established by (or on behalf of) persons eligible for TANF,
with no dollar limit. Accounts are to contain deposits from the recipient’s earnings, matched
by a contributions from a not-for-profit organization, or a state or local government agency
in cooperation with the organization. Withdrawals are allowed only for postsecondary
educational expenses, first home purchase, and business capitalization. All means-tested
programs must disregard amounts, including accruing interest, in TANF-funded IDAs. Some
states mention IDAs in their TANF plans. In 1998, Congress established a 5-year program
of IDA demonstration projects (Assets for Independence Act [AIA], Title IV of P.L. 105-
285) for TANF-eligible persons and certain other low-income workers. Appropriations for
FY1999 and FY2000 were $10 million each; for FY2001, $25 million (budget request) was
appropriated (Consolidated Appropriations Act, H.R. 4577). In determining means-tested
eligibility, states originally were allowed to count deposits by the account holder into these
IDAs, but H.R. 4577 requires that means-tested programs disregard amounts in these IDAs.
Announced at the end of September, 2000 were second year awards of $8.3 million for AIA
demonstration projects ($4.5 million to 25 new grantees, $2.1 million in supplements to 14
previous grantees, and $1.7 million to state departments in Indiana and Pennsylvania that had
begun IDAs before AIA was passed). See CRS Report RS20534.
Unspent TANF Funds
At the end of FY1999, HHS reports that states had an unspent and unobligated balance
in the U.S. Treasury of $2.248 billion in TANF funds, from FY1997, FY1998, and FY1999
TANF grants. A total of 35 states (including D.C.) had unobligated TANF balances. Largest
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reserves were held by New York, $684 million; Ohio, $150 million; Massachusetts, $146
million; and West Virginia, $145 million. States may draw TANF funds from the Treasury
only for reimbursement of expenditures. One bill, H.R. 635, proposed to permit use of TANF
funds for building classrooms and hiring public school teachers. The law sets no fiscal year
deadline for expenditure of TANF funds for “assistance.” The narrow definition of assistance
adopted in final regulations (see below) means that reserve funds that are carried forward
cannot be used for many activities and services for employed families.
Child Support Collections
To receive TANF, parents must assign any child support rights to the state. In FY1999,
child support enforcement offices collected $6 billion assigned by TANF and former TANF
families. Of this sum, $3.8 billion was distributed to former TANF families and $0.1 million
to TANF families; almost all of the rest was used to repay federal and state administrative
costs. The House on September 7, 2000 voted (H.R. 4678) to require states and local offices
to distribute more child support to ex-welfare families (with federal funding) and to allow
states to give child support collections to TANF families without having to repay the Federal
government for its share of the money under certain conditions. The bill also proposed
“fatherhood” grants to promote marriage and “successful parenting” and applied Charitable
Choice rules to them, but the Senate did not act on counterpart legislation. FY2001
appropriations (H.R. 4577) include $1 million to two national organizations that seek to
promote fatherhood.
Final TANF Regulations
Final TANF regulations, issued April 12, 1999, took effect October 1, 1999. The rule
defines “assistance” to include cash, payments, vouchers and other forms of benefits directed
at ongoing, basic needs; it also includes supportive services such as child care and
transportation to families who are not employed. It excludes non-recurrent, short-term
benefits for crisis situations (needs extending no more than 4 months). It also excludes child
care, transportation, and other supports provided to employed families, IDA benefits,
refundable earned income tax credits, work subsidies to employers, and services such as
education and training, case management, job search, and counseling. The final rule contrasts
with the original (1997) proposal, which defined assistance broadly, encompassing most forms
of support, excluding only services without direct monetary value and one-time, short-term
assistance. The final rule retains the requirement that a state must report data on individuals
and families receiving assistance (as now defined) under separate state programs (and on
former recipient families in separate state programs) in order to qualify for a “caseload
reduction credit” against its required work participation rate or to receive a high performance
bonus.
The regulations also retain proposals to permit a state that has adopted the Family
Violence Option (FVO) to receive “reasonable cause” exceptions to penalties for failing work
and time limit rules if the state had granted domestic violence waivers that met certain
standards. The rule provides that States must submit a financial report quarterly (ACF Form
196) showing expenditure of Federal funds, state maintenance-of-effort (MOE) funds in
TANF, and state MOE expenditures in separate state programs. These reports are to show
expenditures on assistance (basic aid, child care, other supportive services, assistance
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authorized solely under pre-TANF law) and on specified categories of non-assistance. The
regulations and preamble can be found in the Federal Register, April 12, page 17720-17918.
Federal Jobs for Welfare Recipients
President Clinton on March 8, 1997, ordered federal agencies to hire TANF recipients
into available jobs. See CRS Report 97-466. In response, agencies made commitments to
hire 10,638 welfare recipients. As of August 22, 2000, the Office of Personnel Management
(OPM) reported that hires totaled 49,803, 468% of the target. More than 75% of the hires
were made by the Commerce Department, presumably for the Census.
TANF Bonus Funds
On September 15, 2000, HHS announced award of $100 million in bonuses to five of
the six jurisdictions that achieved reductions in the percentages of births to unwed women
between 1995 and 1998; in all other jurisdictions non-marital birth ratios increased. The
winners of $20 million bonuses (and the share of their 1997-99 births to unmarried women):
D.C., 63.2%, down 4.1% from 1995-96; Arizona, 38%, down 1.4%; Michigan, 33.6%, down
1.3%; Alabama, 34%, down 0.29%; and Illinois, 33.8%, down 0.02%. Oregon was the sixth
state with a decline; its ratio was 29.3%, down 0.001%. For the U.S. as a whole, the non-
marital birth ratio was up slightly, 32.6%, compared with 32.3%. Bonuses go to the 5 states
with the largest declines; Alabama, D.C., and Michigan also were winners of initial bonuses,
awarded last year.
On December 16, 2000, HHS announced award of the second TANF high performance
bonus: $200 million to 28 states, based on state rankings (absolute and relative) in FY1999
on work-related measures rates of job entry and success in the workforce (job retention and
earnings gain). Winners ranked among the top 10 states in at least one of the categories.
Bonuses ranged from $0.6 million in South Dakota for improvement in workforce success to
$36.1 million in California (also the top FY1998 winner) for workforce success. For details,
see [http://www.acf.dhhs.gov/programs/opre/hpb/table1.htm]. On August 30, 2000, HHS
issued final rules for high performance bonuses, effective for awards beginning in FY2002.
The new rules add four non-work performance measures: “family formation and stability”–
percentage of children in married couple families; health insurance coverage– percentage of
TANF leavers with health insurance (Medicaid or S-CHIP); food stamp coverage–enrollment
percentage among households with children, earnings equal to half-time year round minimum
wage ($5,396 in 2000) and income below 130% of the poverty guideline); and child care
coverage–percentage of eligibles served plus affordability.
For food stamps and health insurance, bonuses will total $20 million each, awarded to
the 3 states with highest absolute scores and the 7 with highest improvement scores; for
family formation and child care, bonuses will total $10 million each, awarded to the 10 states
with highest absolute scores. For work performance, bonuses will total $140 million,
allocated as follows: job entry rate, $56 million; workforce success, $35 million; increase in
job entry rate, $28 million; and increase in workforce success, $21 million. Under the final
rules, however, improvement rates are measured in percentage points, not percentages, so as
not to disadvantage states with a high baseline level of performance. The regulations, with
background discussion, are available at [http://www.acf.dhhs.gov/programs/opre/hpb]. On
July 1, 1999, the Senate adopted a Wellstone amendment (S.Amdt. 1212) to change the high
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performance bonus and require some tracking of ex-TANF recipients, but this was deleted
by conferees from H.R. 2490 before passage.
LEGISLATION
P.L. 106-113
Consolidated Appropriations Act for FY2000. Law broadens eligibility for WtW
grants and adds limited vocational educational or job training to allowable activities. Signed
into law November 29, 1999.
P.L. 106-310
Extends application of charitable choice rules to substance abuse services under Title V
of the Public Health Service act. Signed October 17, 2000.
P.L. 106-387
Agriculture Appropriations for FY2001. Permits states to apply to all food stamp
household their ANF rules for vehicle ownership, provided they are more liberal than food
stamp rules; increases benefits for those with high shelter costs. Signed October 28, 2000.
P.L. 106-554
Consolidated Appropriations Act for FY2001. Appropriates $25 million for
demonstration IDAs, $1 million for two national organizations promoting fatherhood, $2
billion for CCDF, $1.725 billion for SSBG, and restores option to transfer up to 10% of
TANF funds to SSBG. Signed December 21, 2000.
FOR ADDITIONAL READING
CRS Report RL30401. Cash and Noncash Benefits for Persons with Limited Income:
Eligibility Rules, Recipient and Expenditure Data, FY1996-FY1998, by Vee Burke.
CRS Report RS20712. Charitable Choice and TANF, by Vee Burke.
CRS Report RL30021. Child Care Issues in the 106th Congress, by Melinda Gish and Karen
Spar.
CRS Report 97-86. Indian Tribes and Welfare Reform, by Vee Burke.
CRS Report 96-720. TANF Block Grant Program: Current Provisions Compared with
AFDC, by Vee Burke.
CRS Report RS20534. Temporary Assistance for Needy Families and Individual
Development Accounts, by Vee Burke.
CRS Report RS20662. Welfare Law and Victims of Domestic Violence, by Jacqueline Cooke
and Vee Burke.
CRS Report 97-1038. Welfare Recipients and Workforce Laws, by Vee Burke.
CRS Report RS20708. Welfare Reform: Brief Summary of State Programs of Temporary
Assistance for Needy Families (TANF). By Emilie Stoltzfus, Vee Burke, and Gene Falk.
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CRS Report RL30490. Welfare Reform: The Characteristics of TANF Families in FY1998,
by Gene Falk, Vee Burke, Melinda Gish, and Shannon Harper.
CRS Report 97-509. Welfare Reform: Role of Education, by Vee Burke.
CRS Report RL30579. Welfare Reform: Financial Eligibility Rules and Cash Assistance
Amounts under TANF, by Craig Abbey, Vee Burke, Alice Butler, Christine Devere,
Gene Falk, Thomas Gabe, Melinda Gish, Shannon Harper, Carmen Solomon-Fears, and
M. Ann Wolfe.
CRS Report RL30675. Welfare Reform Financing Issues: Supplemental Grants, by Gene
Falk, Holly Goodliffe, and Vee Burke.
CRS Report RL30595. Welfare Reform: Financing and Recent Spending Trends in the
TANF Program, by Gene Falk.
CRS Report RS20766. Welfare Reform Reauthorization: Brief Summary of Issues for the
107th Congress, by Gene Falk, Vee Burke, Melinda Gish, Carmen Solomon-Fears, Joe
Richardson, and Karen Spar.
CRS Report RL30695. Welfare Reform: State Programs of Temporary Assistance for Needy
Families (TANF), by Emilie Stoltzfus, Vee Burke, and Gene Falk.
CRS Report RS20552. Welfare Reform and Medicaid: Brief Overview, by Vee Burke
CRS Report 97-360. Welfare Reform and Subsidized Public Sector Jobs, by Linda Levine.
CRS Report 98-369. Welfare Reform: TANF Trends and Data, by Vee Burke.
CRS Report 98-932. Welfare Reform: Time Limits under TANF (Temporary Assistance for
Needy Families), by Gene Falk and Courtney Schroeder.
CRS Report RS20134. Welfare Reform: Welfare-to-Work Legislation in the 106th Congress,
by Christine Devere.
CRS Report RL30724. Welfare Reform Research: What Have We Learned Since the Family
Support Act of 1988? by Christine Devere, Gene Falk, and Vee Burke.
CRS Report RL30767. Welfare Reform: Work Activities and Sanctions in State TANF
Programs, by Vee Burke.
CRS Report 96-882. The Wisconsin Works Welfare Program: Concept and Experience, by
Vee Burke.