Order Code IB93034
Issue Brief for Congress
Received through the CRS Web
Welfare Reform:
An Issue Overview
Updated February 7, 2003
Vee Burke
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

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CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Major Programs for Low-Income Families
TANF Trends and Data
FY2004 Budget Proposals
The 1996 Welfare Law and Changes to Date
Medicaid and TANF
Child Care
Alien Eligibility for Welfare
Food Stamp Revisions
Social Services Block Grants
TANF Reauthorization Bills in the 107th Congress
Bill Passed by the House in 2002 (H.R. 4737)
Bill Approved by the Senate Finance Committee in 2002 (H.R. 4737)
TANF Issues
Definition of “Work Activities” and the Role of Education
Application of Minimum Wage Laws to “Workfare”
Work Participation Rates and Penalties
Child Care Funding
“Charitable Choice,” Faith-Based Initiative, 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
TANF Bonus Funds
LEGISLATION
FOR ADDITIONAL READING

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Welfare Reform: An Issue Overview
SUMMARY
On Thursday, February 13, the House is
bility, Work, and Family Promotion Act (H.R.
expected to consider H.R. 4, the Republican
4737) to extend TANF on new terms from
leadership bill to reauthorize TANF. House
FY2003 through FY2007, but the Senate
leaders scheduled direct floor action without
Finance Committee substitute bill, the Work,
committee review. Except for date changes,
Opportunity, and Responsibility for Kids Act
the bill, introduced February 4, is almost
(WORK, also H.R. 4737), never reached the
identical to the one passed by the House last
Senate floor. The Senate Committee bill,
year (H.R. 4737). It includes concepts ad-
passed in late June, adopted the 70% work
vanced by President Bush in February, 2002,
participation rate of the House bill. However,
including a 40-hour work week for most
it rejected the House proposal for a 40-hour
TANF recipients and a requirement that states
work week in favor of maintaining the current
eventually engage 70% of recipients in a work
30-hour general rule, and it proposed to en-
activity.
large the list of countable activities. President
Bush charged that the Senate bill had work
The FY2004 budget, sent to Congress
loopholes that made it a “retreat from suc-
February 3, assumes reauthorization of TANF
cess.” In response to arguments that stiffer
block grants ($16.5 billion annually) for 5
work rules would raise child care needs, both
years. Since October 1, 2002, when the origi-
the House and the Senate Finance Committee
nal program expired, TANF and related pro-
last year proposed to increase mandatory child
grams of mandatory child care, transitional
care funding. Over 5 years the increases were
medicaid, and abstinence education have been
$1 billion in the House-passed bill and $5.5
operating under temporary spending authority,
billion in the Senate Committee bill (to 5-year
scheduled to end March 31. The FY2003
totals of $14.5 billion and $19.1 billion,
Omnibus Appropriation bill, H.J.Res. 2,
respectively). The Senate bill also would have
approved by the Senate January 23, would
increased supplemental grants and allowed
continue TANF, on FY2002 terms, through
states to give federally funded TANF to legal
September 30.
immigrants, regardless of date of entry. Both
bills proposed to create marriage promotion
The FY2004 budget proposes to replace
grants and several other specialized grants, but
Section 8 housing vouchers for low-income
their terms differed. For a side-by-side com-
families with a block grant called Housing
parison of the two versions of H.R. 4737 (and
Assistance for Needy Families (HANF), to
current law), see CRS Report RL31541.
permit states to operate foster care programs
with a block grant, to increase the child tax
HHS reports that TANF work participa-
credit from $600 per child to $1,000, effec-
tion rates rose slightly in FY2001, to 34.4%
tive for tax year 2003, and to establish a
for all families. The statutory required rate
voucher program for drug treatment ($200
was 45%, but in 28 states caseload reduction
million annually for 3 years). It also includes
credits reduced effective required rates to
funding for major elements of the Administra-
zero. June, 2002, national enrollment (latest
tion’s faith-based initiative.
available data) was 3% below that of June,
2001, but in 28 states caseloads topped those
Last May, on a largely partisan vote, 229-
of last year. October food stamp enrollment
197, the House passed the Personal Responsi-
was the highest in more than 4 years.
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
On Thursday, February 13, the House is expected to consider H.R. 4, the Republican
leadership bill to reauthorize TANF. The schedule would bypass committee review of the
measure, introduced February 4. Except for date changes, the bill is almost identical to the
one passed by the House last year (H.R. 4737). It includes concepts advanced by President
Bush, including a 40-hour work week for most TANF recipients and a requirement that states
eventually engage 70% of recipients in a work activity. The FY2004 budget, sent to
Congress February 3, assumes reauthorization of TANF block grants ($16.5 billion annually)
for 5 years. The budget proposes to replace Section 8 housing vouchers for low-income
families with a block grant to states, to permit states to operate foster care programs with a
block grant, to increase the child tax credit from $600 per child to $1,000, effective for tax
year 2003, and to establish a voucher program for drug treatment ($200 million annually for
3 years). Since October 1, after the original TANF law expired, TANF and related programs
of mandatory child care, transitional medicaid, and abstinence education, have been
operating on temporary spending authority, due to expire March 31; the FY2003 Omnibus
Appropriation bill passed by the Senate January 23 would continue TANF, on FY2002 terms,
through September 30. On December 12, President Bush issued an Executive Order (EO
13729) to implement an expansion of charitable choice principles to virtually all social
service programs aimed at helping people in need.
BACKGROUND AND ANALYSIS
Major Programs for Low-Income Families
AFDC/TANF national enrollment has been falling since 1994, but the number of
families on cash welfare rose in 28 states from June 2001 to June 2002 (latest national data).
The June 2002 caseload held 2.025 million families, down 3% from the year-earlier number
and down 60% from the March 1994 record-high level (5.084). The food stamp caseload,
which has been rising steadily since April 2001, reached 20.1 million persons in October,
the highest number since January, 1998. The all-time peak was 28 million in March 1994.
The number of children enrolled in Medicaid rose from 21.7 million in FY1999 to 21.8
million in FY2000, but the number of enrolled parents fell from 9 million to 8.3 million
(numbers are estimates). The Earned Income Tax Credit (EITC) is the largest form of
income-tested federally funded cash aid for families. In August 1999 the Council of
Economic Advisers 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. The 2002 CEA report says research has found that time limits alone
caused more than 10% of the 1993-1999 caseload decline. FY2000 estimated spending for
low-income children and their families by selected major income-tested programs that give
cash, food, medical, and housing aid reached $154.3 billion (revised figure). Of the total,
$51.3 billion (33%) was for cash aid, and $103 billion was for noncash aid (Table 1). The
FY2001 figure for cash aid is not yet available, but the amount for noncash aid was $107.6
billion, up 4.5% from FY2000. For a breakdown of FY2000 overall spending on behalf of
all population groups ($437 billion), see CRS Report RL31228.
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Table 1. Estimated Income-Tested Outlays for Children and Their
Families from Selected Major Programs, FY2000 and FY2001a
Federal Funds
State-local Funds
Recipientsb
($ in billions)
($ in billions)
(in millions)
FY2000
FY2001
FY2000
FY2001
FY2000
FY2001
Cash aid
$43.7
N.A
$7.6
N.A.
––
––
(TANF)c
(6.9)
N.A.
(7.6)d
N.A.
(5.8)e
(5.5)e
(EITC)f
(31.9)
(32.3)
0
0
(19.3)
(19.3)
(SSI) (children only)
(4.9)
(5.0)
N.A.
N.A.
(.85)
(.87)
Food benefits
26.9
27.5
1.0
––
––-
––
(Food stamps)g
(14.6)
(15.0)
(1.0)
(1.0)
(13.4)e
(13.5)e
(Subsidized meals)h
(8.3)
(8.4)
N.A.
N.A.
(17.3)
(17.3)
(WIC)
(4.0)
(4.1)
N.A.
N.A.
(7.2)e
(7.3)e
Major medical aid
30.2
32.6
N.A.
N.A.
34.3
36.9
(Medicaid)i
(28.3)
(29.9)
(21.4)
(22.6)
(31.0)e
(32.3)e
(S-CHIP)j
(1.9)
(2.7)
N.A.
N.A.
(3.3)
(4.6)
Major housing aid
23.5
23.9
0
0
3.8
4.1
(Public housing and
Section 8)
(19.5)
(19.8)
0k
0k
(3.7)l
(4.0)l
(Rural housing service
programs)m
(4.0)
(4.1)
0
0
(0.1)n
(0.1)n
a. Includes administrative costs where available. Excludes education benefits, work and job training programs,
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; EITC, yearly total number of families; SSI, number of children in
September, and housing, number of households at end of year.
c. Excludes outlays for work activities, child care, supportive services and other activities to promote TANF
goals.
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, 8.8 million in FY2000, 8.8 million in FY2001; WIC, 5.4
million in FY2000, 5.5 million in FY2001; TANF, 4.3 million in FY2000, 4.0 million in FY2001;
Medicaid, 21.9 million and 22.6 million, respectively.
f. Credit earned in calendar year preceding the fiscal year (example, CY1999 for FY2000). Direct payments,
$27.6 billion for FY2000; $ 27.8 billion for FY2001. Reduced tax liability, $4.3 billion and $4.5 billion,
respectively. FY2001 spending and recipient data are estimates.
g. Estimate. Includes Puerto Rico’s nutritional assistance program. Does not include employment/training
spending.
h. Estimate. 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 from the April 2001 and March 2002 baselines of CBO. The federal funding share
is estimated at 57% of total spending.
j. Spending estimates are based on state expenditure reports. Recipient counts represent the number of children
ever enrolled during the year.
k. Localities accept below-tax payments in lieu of property taxes on public housing projects.
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l. Based on estimated percentage of households with children: FY2000, public housing, 45%; Section 8, 70%;
FY2001, public housing, 43%; Section 8, 51%.
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. Assistance was provided
to 87,423 families in FY2000 and 86,590 in FY2001. The Rural Housing Service does not collect data
on children in households.
TANF Trends and Data
Nationally (as of June 2002) caseloads continued a decline that began in 1995 (Figure
1), but in 28 states enrollment topped June 2001 levels. According to the Department of
Health and Human Services (HHS) persons now on the rolls include rising proportions of
long-term recipients and minorities, and TANF “families” include a rising proportion with
no adult recipient (child-only cases). The 2001 poverty rate among children in female-
headed families (no spouse present) was 39.3%, compared with 39.8% in 2000, 49.3% in
1996, and 52.9% in 1994, when AFDC numbers were at a record high.
Figure 1. AFDC/TANF Families, June Cases, 1989-2002
6000
5000
4000
nds
a 3000
thous
2000
1000
0
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
FY2004 Budget Proposals
The FY2004 budget assumes reauthorization of TANF block grants ($16.5 billion
annually) for 5 years and proposes to continue child care funding at the FY2002 level ($4.8
billion). It proposes to replace Section 8 housing vouchers for low-income families with a
block grant program to states, to increase the child tax credit from $600 per child to $1,000,
effective for tax year 2003, and to establish a voucher program for drug treatment ($200
million annually for 3 years). It includes funding for major elements of the Administration’s
faith-based initiative: $100 million for the compassion capital fund, $50 million for
mentoring children of prisoners, and $10 million for maternity group homes. It makes
several proposals to improve accuracy of eligibility determinations for major welfare
programs, including EITC, food stamps, child nutrition programs, TANF, foster care and
Head Start. It includes $100 million for an EITC “compliance initiative,”which would
require claimants to provide additional information to the IRS to validate eligibility before
payment, and $5 million to develop measures to reduce the incidence of erroneous payments
in TANF, foster care, and Head Start. It proposes to improve accuracy of eligibility decisions
for child nutrition programs through actions under current and proposed law.
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The 1996 Welfare Law and Changes to Date
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 (P.L. 104-193), it
repealed AFDC, Emergency Assistance for Needy Families, and the Job Opportunities and
Basic Skills Training (JOBS) program and replaced them with TANF. It combines previous
funding levels for the three programs into a single block ($16.5 billion annually through
FY2002 and entitles each state to a fixed annual sum based on pre-TANF funding. It also
provides an average of $2.3 billion annually in a new child care block grant. (TANF and
related programs have been extended through the first half of FY2003 by continuing
resolutions of Congress.) The 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. As amended in 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 required state cost
sharing, to help states achieve required work participation rates TANF greatly enlarged state
discretion in operating family welfare, and it ended the benefit entitlement of individual
families. TANF explicitly allows states to administer benefits and provide services through
contracts/vouchers with charitable, religious, or private organizations, a provision widely
called Charitable Choice.
The TANF block grant imposes some conditions. States must achieve minimum work
participation rates and maintain at least 75% of their “historic” level of state welfare funding,
increased to 80% if the state fails the work participation rate. States must require parents and
other caretaker recipients to engage in state-defined “work” after a maximum of 24 months
of benefits and must impose a general 5-year time limit on federally-funded ongoing basic
benefits. They may exempt single parents with a child under age 1 from required work (and
from the calculation of work participation rates). In FY2002, 50% of all families with an
adult recipient were required to work (including 90% of families with two parents); statutory
work rates are lowered for caseload declines from FY1995 levels. States are forbidden to
give TANF aid to unwed parents under 18 unless they live under adult supervision, and, if
high school dropouts, attend school. States may continue reforms begun under waivers from
AFDC rules even if terms are inconsistent with the new law. (For TANF provisions, as
compared to AFDC, see CRS Report 96-720.)
Medicaid and TANF
Although the 1996 law ended AFDC, it retains AFDC eligibility limits for Medicaid
use. It requires states to give Medicaid coverage to children and parents who would be
eligible for AFDC cash (under July 16, 1996 terms) if AFDC still existed. For this purpose,
states may lower AFDC income/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. Through FY2002, states
had to extend transitional medical assistance (TMA) for 12 months to those who lost TANF
eligibility because larger earnings lifted their income above July 1996 limits. The TANF bill
passed by the House in 2002 (H.R. 4737) proposed to extend TMAS for one year; the Senate
Finance version of the bill, for 5 years.
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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 base 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 was $13.9 billion over 6 years
($2.7 billion for FY2002, the final year). The law also authorized $1 billion annually through
FY2002 in discretionary funding under an expanded Child Care and Development Block
Grant (CCDBG). The combined entitlement and discretionary funding streams are referred
to as the Child Care and Development Fund (CCDF) In discretionary funding, Congress
appropriated $2.1 billion for FY2002. For child care funding/spending details, see CRS
Report RL31274. States may transfer some TANF funds to CCDF; in addition, they use
TANF block grants for “direct” child care. FY2000 TANF-funded child care (federal and
state dollars) totaled $2.3 billion, exclusive of $2 billion transferred to CCDF and state
spending that also could be counted toward sums needed to qualify for matching child care
entitlement funds. The FY2004 budget requests $4.8 billion for child care, the same sum as
for FY2002 ($2.7 billion in entitlement funds, $2.1 billion in discretionary funds.)
Alien Eligibility for Welfare
The 1996 law barred most legal immigrants from welfare benefits. It also gave states
options (1) to extend TANF, Medicaid, and Title XX social services to legal immigrants who
arrived before the 1996 law and (2) to extend these benefits, after their first 5 years of U.S.
residence, to persons who arrived later. P.L. 105-33 restored SSI for legal aliens enrolled
when the ban was passed, and those who were here then and later become disabled; and P.L.
105-185 restored food stamp eligibility for immigrant children, aged, and disabled aliens here
before enactment of the 1996 law. 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 were 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). (See CRS Report RL31114 for more
details.) The 2002 farm bill (P.L. 107-171) grants food stamp eligibility to noncitizens after
their first 5 years in this country. The Senate Finance Committee TANF bill in the last
Congress would have permitted states to give federally funded TANF to legal aliens,
regardless of their entry date, and to give Medicaid and S-Chip to immigrant children and
pregnant women.
Food Stamp Revisions
The 1996 law expanded states’ food stamp role, added 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 work programs, and P.L. 105-18 allowed states to pay for food stamps for persons made
ineligible for federally financed stamps by the 1996 law. P.L. 106-387 raised benefits for
those with high shelter costs, and the 2002 farm bill increased estimated food stamp spending
by $5.7/$5.9 billion over 10 years. Changes include expanded eligibility for aliens.
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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 entitled states to $2.38
billion yearly. Congress later appropriated $2.5 billion for FY1997, $2.3 billion for FY1998,
$1.9 billion for FY1999, and $1.8 billion for FY2000. Beginning in FY2001, P.L. 105-178
reduced the entitlement ceiling to $1.7 billion, and Congress appropriated this amount for
FY2002. (For TANF transfers to SSBG, see Transfer of TANF funds.) In a charity tax bill
(S. 256) the Senate Finance Committee on February 5, 2003, voted to increase SSBG funding
for FY2003 and FY2004 (to $1.975 and $2.8 billion, respectively). The FY2004 budget
requests $1.7 billion.
TANF Reauthorization Bills in the 107th Congress
(See CRS Report RL31541 for a side-by-side comparison of the House-passed and
Senate Finance Committee versions of H.R. 4737 and CRS Report RL31393 for a brief
comparison of all bills introduced in the 107th Congress.)
Bill Passed by the House in 2002 (H.R. 4737)
Work Rules. This bill proposed to increase the all-family minimum participation
requirement from the current 50% level to 70% by FY2007, end the separate higher rate for
2-parent families, and require TANF adults to engage in work or self-sufficiency activities
an average of 40 hours per week, including 24 hours in “work,” defined as unsubsidized jobs,
subsidized private jobs, subsidized public jobs, on-the-job training, supervised work
experience, and supervised community service. States could define any other activity as
countable (for the remaining 16 weekly hours) so long as it was consistent with the purposes
of TANF. Also, for 3 months within 24 months, persons could be deemed to meet the 24
hour weekly direct work requirement by engaging in activities chosen by the state, and under
some circumstances, a fourth month could be credited for education. The bill proposed to
replace the fixed base year (FY1995) for the general caseload reduction credit with a moving
and more recent base, but it would have created a “super-achiever” caseload reduction credit
for a state whose caseload fell at least 60% from its FY1995 level (without regard to policy
changes that might have reduced caseloads). The bill would have required states to end cash
aid to a family for at least one month if the parent failed to engage in required activities for
two months. It would have continued the 5-year time limit on federally paid basic assistance,
along with the 20% hardship exemption. It proposed to allow states to make TANF a
mandatory partner in the workforce investment system.
Other Provisions. The bill would have allowed 50% of TANF funds to be
transferred to the CCDBG (up from 30% in current law). Further, it proposed to appropriate
$2.917 yearly in mandatory child care funds through FY2007 (a $1 billion increase over 5
years). It would have authorized appropriation of an annual average of $1.7 billion over 5
years for the CCDBG, with the sum rising from $2.3 billion for FY2003 to $3.1 billion for
FY2007. It proposed new “superwaiver” authority for states to coordinate rules of specified
programs for low-income families. Programs and activities covered by this waiver provision
were TANF, Welfare-to-Work grants, SSBG, Job Opportunities for Low-Income Individuals
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(JOLI), Title I of WIA (excluding JOB Corps), Adult Education and Family Literacy Act,
CCDBG, U.S. Housing Act (excepting Section 8 rental assistance and set-asides for the
elderly and disabled), Homeless Assistance Act; and the food stamp program. Specified
provisions (including non-financial food stamp rules, any funding restriction in an
appropriations act) could not have been waived. Funds could not have been transferred from
one account to another, and projects could not increase federal costs. Waiver approval would
have been required by each relevant Secretary. The bill also would have authorized five
states to replace food stamps with demonstrations of food assistance block grant projects.
The bill proposed to establish marriage promotion matching grants ($100 million yearly) and
would have allowed states to use federal TANF funds as the 50% state match. It proposed
to appropriate $100 million annually for research and demonstration projects and technical
assistance and specified that these funds shall be spent primarily on activities allowed under
marriage promotion grants. It also would have established fatherhood projects ($20 million
authorized annually through FY2007), ended the nonmarital birth bonus, and ended the high
performance bonus, replacing it with an employment achievement bonus ($500 million
appropriated for FY2004 through FY2008). The bill proposed to make improving child well-
being the overall TANF purpose and to add “reducing poverty” to the goal of ending
dependence on government benefits. The bill also would have extended abstinence-only
education funding for 5 years and transitional Medicaid for one year.
Bill Approved by the Senate Finance Committee in 2002 (H.R. 4737)
The Senate Finance Committee approved, as a substitute for the House-passed H.R.
4737, the Work, Opportunity, and Responsibility for Kids (WORK) Act. The measure
proposed to augment basic TANF grants of $16.5 billion by appropriating $441 million
yearly for supplemental grants (on a new basis) and folding these funds into the basic grant
structure. The result would have been to increase funding for 17 states (7 of which do not
receive current supplemental grants) with below-average per capita income. Another 7 states
would have continued to receive current level supplemental grants.
Work Rules. The Senate Committee bill, like the House bill, would have retained the
5-year limit on federally funded ongoing aid and raised work participation standards to 70%
by FY2007. It proposed to replace the caseload-reduction credit with an employment credit,
expand the list of countable work activities, and adopt a 30-hour work week for most
recipients. It would have required that 24 hours weekly be spent in (an enlarged list of)
priority activities, but retained the 20-hour week for single parents of a child under 6. It
proposed to define postsecondary education as creditable work for up to 24 months and to
permit states to engage some recipients in a specified 2- to 4-year degree program. The bill
also would have allowed a state to exempt 10% of adult recipients from work because of
being needed to care for a family member with a disability or chronic illness.
Other Provisions. The bill would have allowed states to give federally funded TANF
to legal immigrants, regardless of date of entry; and would have extended transitional
Medicaid and abstinence-only education for 5 years. It would have increased mandatory
child care spending by $5.5 billion over 5 years and established grants for marriage
promotion, fatherhood, TANF tribal improvement; second chance homes, Business Link
partnerships and transitional jobs, at-home infant care demonstrations, and transportation
programs. It would have permitted states to provide Medicaid and State Children’s Health
Insurance Program (SCHIP) services to legal immigrant children and pregnant women and
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would have required the HHS Secretary to approve applications for waiver programs on
terms “similar or identical to” those of successful programs. It also would have increased
funding for the Social Services Block Grant for FY2005 and provided $50 million annually
for 5 years for abstinence-first or abstinence-plus education (in addition to $50 million yearly
for abstinence-only education.)
TANF Issues
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 credit for postsecondary education, TANF law includes only three
educational activities: vocational educational training (12 month limit), secondary school
attendance and education directly related to employment (adult high school dropouts and teen
parents only). The law provides that participation in vocational educational training or
completion of high school can account for no more than 30% of the persons credited with
work. Although it is not a countable activity, most state TANF programs include
postsecondary education, as the sharp caseload drop has cut or ended the risk of penalty for
failing work participation rates. (See CRS Report RL30767.)
Application of Minimum Wage Laws to “Workfare”
The Clinton Administration ruled that most TANF recipients assigned to “workfare,”
where recipients work for their benefit, would be classified as “employees” under the Fair
Labor Standards Act and, hence, must receive the minimum wage rate (higher of the federal
or state rate). The Internal Revenue Service (IRS) said it would not exclude TANF workfare
payments from federal income and employment taxes if recipients were required to
participate more hours for their benefit than the minimum wage equivalent. Adult TANF
recipients generally now must work an average of 30 hours weekly (20 hours if they have a
child under 6). At the federal minimum wage ($5.15), a 30-hour weekly workfare
assignment equates to $154.50 in benefits ($669 per month); and in the 11 jurisdictions with
higher state minimum wage rates, the required “workfare benefit” would be higher. Only in
Alaska, California, New York (Suffolk County), and Wisconsin (Community Service
program), are TANF maximum benefits for a 3-person family (as of Jan. 2002) high enough
to provide the required amount for 30 hours of work, at the federal minimum wage rate, by
a single-parent family. Many states could observe the workfare minimum “wage” by adding
food stamps to the calculation, but some would have to boost cash benefits.
Work Participation Rates and Penalties
HHS reported on October 17, 2002, that work participation rates increased in FY2001
to 34.4% for all families and 51.1% for 2-parent families (compared with 34% and 48.9%,
respectively, in FY2000). All states met their all-family adjusted minimum standards, as did
30 jurisdictions of the 35 with two-parent families in the TANF program. The statutory
minimum work rates for FY2001 were 45% 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 FY2000. These credits reduced all-family participation standards to zero in 28
states. See [http://www.acf.dhhs.gov/programs/ofa/im01rate.htm] for state rates. Both
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versions of H.R. 4737 in the 107th Congress proposed to end the higher participation rate for
two-parent families.
Child Care Funding
The level of child care funding has emerged as a key issue in TANF reauthorization.
Last year’s House-passed TANF bill included an extra $1 billion in mandatory child care
funding over 5 years and raised the discretionary authorization by $200 million annually over
5 years, reaching the level of $3.1 billion in FY2007. The Senate Finance TANF bill in 2002
proposed to increase mandatory funding by $5.5 billion over 5 years. S. 263, introduced
January 30, 2003, would increase funds for the Child Care Development and Block Grant
(CCDBG) by $11.2 billion over 5 years.
“Charitable Choice,” Faith-Based Initiative, 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 (or
vouchers redeemable with) charitable, religious, or private organizations. However, food
stamp and Medicaid law effectively require eligibility to be determined by a public official.
The stated purpose of what has come to be known as “charitable choice” is to allow religious
organizations to provide services on the same basis as any other nongovernmental provider
“without impairing their religious character” or diminishing the religious freedom of
recipients. Since 1996, Congress has enacted other charitable choice provisions–applying
them to grants under the Community Services Block Grant (1998) and to substance abuse
services under the Public Health Service Act (2000). (See CRS Report RS20712.) Using
its new privatization authority, Wisconsin has contracted out the administration of TANF in
some counties, and a 2002 survey by the General Accounting Office found that in some
locations in three other states (Texas, Arizona, and Florida) the determination of TANF
eligibility is performed by contractors (GAO-02-661).
To carry out the faith-based agenda proposed by President Bush in January 2001, the
House voted (H.R. 7) to extend charitable choice rules to nine new program areas and offer
tax incentives for charitable giving, but the Senate did not pass this legislation. On
December 12, 2002, the President issued an Executive Order (No. 13279) to implement an
expansion of charitable choice principles to virtually all social service programs aimed at
helping people in need. Congress earlier had acted on four other faith-based initiatives: a
matching grant program to help children of prisoners, prison pre-release pilot programs, a
Compassion Capital fund to provide technical aid and start-up costs for small groups, and
competition for 21st Century Community Learning Center grants. However, Congress took
no action on two other faith-based initiatives: responsible fatherhood grants and second-
chance maternity homes. During 2002, the Administration announced award of almost $25
million in Compassion Capital fund grants to 21 “intermediary” organizations authorized to
issue sub-grants and of $17.5 billion in funds designed “to link faith-based and grassroots
community organizations” to the nation’s One-Stop Career system under the Workforce
Investment Act (WIA). The FY2004 budget requests $100 million for the Compassion
Capital fund, $50 million to mentor children of prisoners, and $10 million for maternity
group homes.
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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 created 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. Remaining funds were to be used for competitive grants. Over the
2 years, formula grants totaled almost $2 billion, and competitive grants, $712 million. As
of December 31, 2000, $1.6 billion in WtW funds remained unspent; and, as requested by
the President, Congress extended the WtW spending deadline (from 3 years to 5 years from
the award date) in P.L. 106-554. As first enacted, 70% of funds had to be used to benefit
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 a time limit. Eligibility was liberalized by
P.L. 106-113. States now can help 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 non-TANF custodial parents with below-poverty income who are
unemployed, underemployed, or having difficulty paying child support and comply with a
personal responsibility contract. (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. 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. Cumulative
SSBG transfers from TANF awards through FY1999 totaled $6.4 billion, 13.7% of awards.
During FY1999, states transferred 17% of 1999 awards (11% to CCDBG and 6% to SSBG).
P.L. 105-178 cut the share of funds that could go to SSBG to 4.25%, effective in FY2001,
but Congress in December restored the 10% cap for FY2001 only; and in late 2001 ( P.L.
107-116) continued it at 10% for FY2002. The House voted in 2002 (H.R. 4737) to allow
50% of TANF funds to be transferred to CCDBG.
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; all but 10 jurisdictions
have adopted this Family Violence Option (FVO). 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. Regulations permit
a state that has adopted the 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. (See CRS Report RS20662.) For legislation, see S. 940/H.R. 1990, H.R.
2258, and S. 1249.
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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 for welfare recipients and other low-income
persons (income not above 150% of the poverty level). 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, and for FY2001, $99.780 million (P.L.
106-346). In FY1999, the Federal Transit Administration (FTA) awarded competitive grants
to 206 projects, but thereafter Congress designated many projects for funding. For FY2000,
about 50% of funds were earmarked for specific projects, and for FY2001, about 75% ($21
million was earmarked in FY2001 for five state governments). Observing that earmarking
of funds prevented projects to “emerge from a competitive process,” FTA proposed on May
3, 2001, to allocate all funds among the states and outlying areas, on the basis of each
jurisdiction’s share of low-income persons, beginning in FY2002. It requested $125 million
for that year and said a formula program would allow states to select grantees on a
competitive basis and facilitate multi-year funding. For details of the proposal and
information about FY1999-FY2001 awards, see [http://www.fta.dot.gov/wtw]. A GAO
study (GAO-03-204) in December 2002 found that the Job Access program has improved
local service coordination, but said the Department of Transportation had failed legal
requirements to evaluate the program and submit a report to Congress.
Housing Vouchers for TANF Recipients
In response to President Clinton’s FY1999 request, Congress appropriated funds in
1998 (P.L. 105-276) for tenant-based housing assistance to help eligible TANF families
move to work ($283 million, sufficient for 50,000 Section 8 vouchers). This 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 and
FY2001 budgets requested funding for new WtW housing vouchers, but Congress denied the
requests, and subsequent budgets (including that for FY2003) have sought no new WtW
housing vouchers. The FY2004 budget proposes to replace Section 8 housing vouchers with
Housing Assistance for Needy Families (HANF) block grants to states. For a general
discussion of housing for the poor, see CRS Report RL30486.
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. P.L. 106-554 added “renewal communities” to the areas
where a tax credit is offered for hiring resident youth. S. 545, introduced March 15, 2001,
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would extend WOTC to small business employees working or living in areas of poverty.
P.L. 107-147, signed March 9, includes an extension of the WtW tax credit and WOTC
through December 31, 2003. The FY2004 budget proposes to extend these credits, in
combined, modified form, through December 31, 2005. See CRS Report RL30089.
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 IDEAS.
According to HHS, 31 states allow TANF recipients to establish IDAs, including IDAs under
the Assets for Independence (AIA) 5-year demonstration program created by Congress in
1998. In the first 3 years of the AIA program, awards totaling $37.5 million were made to
125 competitively-funded grantees to operate IDA programs for TANF-eligible and certain
other low-income persons. In addition, under terms of the law, two states (Indiana and
Pennsylvania) with pre-existing programs were awarded just over $5 million for FY1999-
2001. In mid-April, 2002, the Office of Community Services requested applications for
FY2002 awards. Deadline for applications was August 5. Appropriations for FY1999 and
FY2000 were $10 million each; for FY2001 and FY 2002, $25 million each. In mid-June,
2002, the Office of Refugee Resettlement (ORR) announced that it planned to award about
$2.5 million in FY2002 ORR funds for projects to establish and manage IDA accounts for
refugees (a term including asylees, Cuban and Haitian entrants, and certain Amerasians from
Vietnam). Savings in these IDAs could be used not only for home ownership, business
capitalization, and postsecondary education, but also for purchase of an automobile or
computer. The Senate Finance Committee in 2002 (H.R. 7) and again on Feb. 5, 2003 (S.
256) approved a proposal to establish a new IDA program financed with tax credits to
financial institutions. The Finance Committee proposal is included in the FY2004 budget.
Unspent TANF Funds
As of June 30, 2002, HHS reports that states had an unspent/unobligated balance in the
U.S. Treasury of $4.5 billion in TANF funds (of which $2.3 billion represented unliquidated
obligations). Four states accounted for half of the total: California, $891 million; New York,
$809 million; Ohio, $286 million; and Pennsylvania, $263 million. Nine states had no
balances: Colorado, Connecticut, Delaware, Illinois, Kentucky, Massachusetts, Montana,
Rhode Island, and Virginia. States may draw TANF funds from the Treasury only for
reimbursement of expenditures. The law sets no fiscal year deadline for expenditure of
TANF funds for “assistance,” defined as basic ongoing aid. Both versions of H.R. 4737
(TANF reauthorization bill) would permit carryover of funds for any benefit or service.
Child Support Collections
To receive TANF, parents must assign child support rights to the state. In FY1999,
child support enforcement offices collected $6 billion assigned by TANF and former TANF
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families. Of this sum, $3.8 billion was distributed to former TANF families and $0.1 million
to TANF families; most of the rest was used to repay federal and state administrative costs.
The House voted in 2001 (H.R. 4678) to require states and localities 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. The bill also proposed “fatherhood” grants to promote marriage and applied
Charitable Choice rules to them, but the Senate did not act on counterpart legislation. P.L.
106-553 and P.L. 106-554 appropriated $4 million to two national organizations to promote
fatherhood. In 2002, both the House-passed TANF bill (H.R. 4737) and the Senate Finance
Committee substitute for this bill included provisions to promote “responsible fatherhood”
and distribute more child support directly to families.
TANF Bonus Funds
On October 4, 2002, HHS announced award of $100 million in bonuses to 6 of the 7
jurisdictions that achieved reductions in the percentages of births to unwed women between
1997-98 and 1996-00. Bonuses went to Alabama, Colorado, D.C., Michigan,, Texas, and
the Virgin Islands. On July 2, 2002, the Department announced award of the third TANF
high performance bonus: $200 million to 26 states and D.C., based on state rankings
(absolute and relative) in FY2000 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 category. Bonuses ranged from $0.648 million in Nebraska for improvement
in workforce success to $41.7 million in California (also the top winner in the two previous
years) for workforce success. For state rankings and high performance bonuses, see
[http://www.acf.dhhs.gov/programs/opre/hpb/index.htm]. On August 30, 2000, HHS issued
final rules for high performance bonuses, effective for awards beginning in FY2002,
available on the HHS Web site at [http://www.acf.dhhs.gov/programs/opre/hpb]. The new
rules add four non-work performance measures: family formation and stability, health
insurance coverage, food stamp coverage, and child care coverage.
LEGISLATION
Note: All Senate bills shown were referred to the Senate Finance Committee.
H.R. 4 (Pryce)
Reauthorizes TANF, on new terms, for 5 years. Almost identical to H.R. 4737, as
passed by House in 2002. See text above. Introduced February 4, 2003.
H.R. 535 (AcevedopVila)
TANF. Provides access to “tools” for moving from welfare to work. Introduced
February 5, referred to Committees on Ways and Means and Energy and Commerce.
H.R. 624 (Stark)
TANF. Credits work-barrier removal as work. Introduced February 5, referred to Ways
and Means Committee.
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H.R. 625 (Stark)
TANF. Makes poverty reduction a TANF goal and provides grants for that purpose.
Introduced February 5, referred to Ways and Means Committee.
S. 261 (Bingaman)
TANF. Children First Act. Increases CCDBG funding by $11.2 billion over 5 years;
excludes months of TANF-funded child care benefits from federal 5-year assistance limit.
Other provisions. Introduced January 30, 2003..
S. 262 (Bingaman)
TANF. Removes limit on percentage of recipients who may be credited with work by
virtue of educational activity. Removes 5-year assistance limit from months of child care or
transportation benefits received by non-cash recipients engaged in work or education.
Introduced January 30.
S. 263 (Bingaman)
TANF and waivers. Allows states to continue (through September 30, 2007) waivers
that were scheduled to expire between Oct. 1, 2002 and September 30, 2007. Requires HHS
Secretary to approve waiver applications with similar or identical terms to those of waivers
continued by above provision. Amends state plan requirements. Introduced January 30.
S. 317 (Levin)
TANF. Allows vocational educational training to be counted as a TANF work activity
for 24 months. Introduced February 6, 2003.
FOR ADDITIONAL READING
(See also the CRS Welfare Reform Briefing Book, at
[http://www.congress.gov/brbk/html/ebwlf1.shtml])
CRS Report RL31228. Cash and Noncash Benefits for Persons with Limited Income:
Eligibility Rules, Recipient and Expenditure Data, FY1998-FY2000, by Vee Burke.
CRS Report RL31371. Comments from the Public on TANF Reauthorization, by Vee Burke,
Gene Falk, Melinda Gish, Shannon Harper, Carmen Solomon-Fears, Karen Spar, and
Emilie Stoltzfus.
CRS Report 97-86. Indian Tribes and Welfare Reform, by Vee Burke.
CRS Report RL31393. TANF: Brief Comparison of Reauthorization Bills, by Vee Burke.
CRS Report RL31541. TANF Reauthorization: Side-by-Side Comparison of Current Law
and Two Versions of H.R. 4737, by Vee Burke.
CRS Report RS21070. TANF Sanctions Brief Summary, by Vee Burke and Gene Falk.
CRS Report RS21069. TANF Time Limits: Basic Facts and Implications, by Gene Falk, Vee
Burke, and Shannon Harper.
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CRS Report RL31087. Welfare Reform: FY2000 TANF Spending and Recent Spending
Trends, by Gene Falk.
CRS Report 97-509. Welfare Reform: Education as a Work Activity, by Vee Burke.
CRS Report 98-369. Welfare Reform: TANF Trends and Data, by Vee Burke.
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 RL30882. Welfare Reform Research: What Do We Know about Those Who
Leave Welfare? by Christine Devere.
CRS Report 96-882. The Wisconsin Works Welfare Program: Concept and Experience, by
Vee Burke.
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