Order Code IB93034
Issue Brief for Congress
Received through the CRS Web
Welfare Reform:
An Issue Overview
Updated February 27, 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
House-Passed Bill (H.R. 4)
Work Rules
Other Provisions
Senate Republican Leadership Bill (S. 5)
Work Rules
Other
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 February 13, H.R. 4, the House Re-
bility, Work, and Family Promotion Act (H.R.
publican leadership bill to reauthorize TANF
4737) to extend TANF on new terms from
on new terms was passed by the House, and
FY2003 through FY2007, but the Senate
on February 14, the Senate Republican leader-
Finance Committee substitute bill, the Work,
ship bill (S. 5) was introduced. Except for
Opportunity, and Responsibility for Kids Act
date changes, H.R. 4 is almost identical to the
(WORK, also H.R. 4737), never reached the
bill passed by the House last year (H.R. 4737).
Senate floor. The Senate Committee bill,
Both H.R. 4 and S. 5 include 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. The Senate bill adds new anti-fraud
large the list of countable activities. President
rules and permits states to contract out the
Bush charged that the Senate bill had work
determination of eligibility for food stamps.
loopholes that made it a “retreat from suc-
cess.” In response to arguments that stiffer
The FY2004 budget, sent to Congress
work rules would raise child care needs, both
February 3, assumes reauthorization of TANF
the House and the Senate Finance Committee
block grants ($16.5 billion annually). Since
last year proposed to increase mandatory child
October 1, 2002, when the original program
care funding. Over 5 years the increases were
expired, TANF and related programs of man-
$1 billion in the House-passed bill and $5.5
datory child care, transitional medicaid, and
billion in the Senate Committee bill (to 5-year
abstinence education have been operating
totals of $14.5 billion and $19.1 billion, re-
under temporary spending authority. The
spectively). The Senate bill also would have
FY2003 Omnibus Appropriation bill, signed
increased supplemental grants and allowed
by the President on February 20 (P.L. 108-7),
states to give federally funded TANF to legal
extends TANF on FY2002 terms from March
immigrants, regardless of date of entry. Both
31 until June 30.
bills proposed to create marriage promotion
grants and several other specialized grants, but
The budget proposes to replace Section 8
their terms differed. For a side-by-side com-
housing vouchers for low-income families
parison of the two versions of H.R. 4737 (and
with a block grant called Housing Assistance
current law), see CRS Report RL31541.
for Needy Families (HANF), to permit states
to operate foster care programs with a block
HHS reports that TANF work participa-
grant, to increase the child tax credit from
tion rates rose slightly in FY2001, to 34.4%
$600 per child to $1,000, effective for tax year
for all families. The statutory required rate
2003, and to establish a voucher program for
was 45%, but in 28 states caseload reduction
drug treatment ($200 million annually for 3
credits reduced effective required rates to
years). It also includes funding for major
zero. September 2002, national enrollment
elements of the Administration’s faith-based
was 4.7% below that of September, 2001, but
initiative.
in 24 jurisdictions caseloads topped those of
last year. November food stamp enrollment,
Last May, on a largely partisan vote, 229-
at 20.3 million persons, was the highest in
197, the House passed the Personal Responsi-
more than 4 years.
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
The House on February 13 passed H.R. 4, the Republican leadership bill to reauthorize
TANF on new terms for 5 years, FY2004-2008, and on the next day, the Senate Republican
leadership bill (S. 5) was introduced. Except for date changes, H.R. 4 is almost identical to
the bill passed by the House last year (H.R. 4737). Both H.R. 4 and S. 5 include concepts
advanced by President Bush in February, 2002, including a 40-hour work week for most
TANF recipients and a requirement that states eventually engage 70% of recipients in a work
activity, but S. 5 has provisions not in H.R. 4, including anti-fraud rules and some food
stamp provisions. The FY2004 budget, sent to Congress February 3, 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, to establish a voucher program for drug
treatment ($200 million annually for 3 years), and to permit states to obtain funding for
medicaid and the State Children’s Health Insurance Program (SCHIP) in a single payment.
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. P.L. 108-7, signed on February 20 extends TANF on
FY2002 terms from March 31 until June 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 TANF rolls rose in more than half the states during FY2002. The September
2002 caseload held 2.025 million families, compared with 2.103 million one year earlier and
with the record peak of 5.084 million in March 1994. (Numbers exclude some families
moved from TANF to state-funded programs.)
The food stamp caseload, which has been rising steadily since April 2001, reached 20.3
million persons in November, the highest number since early 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. The 2002 report
of the Council of Economic Advisers (CEA) 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 September 2002) caseloads continued a decline that began in 1995
(Figure 1), but in 24 jurisdictions enrollment topped year-earlier 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, September
Cases,1989-2002
6,000
5,000
4,000
3,000
2,000
Thousands
1,000
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 with a block grant program to
states, increase the child tax credit from $600 per child to $1,000, effective for tax year
2003, establish a voucher program for drug treatment ($200 million annually for 3 years),
and allow states to obtain medicaid/SCHIP funding in a single payment. It includes funding
for components 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 reduce the incidence of erroneous
payments in major welfare programs, including EITC, food stamps, child nutrition programs,
TANF. 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
(See CRS Report RL31541 for a side-by-side comparison of the bill passed last year and
the Senate Finance Committee substitute for it (both called H.R. 4737). Also, CRS Report
RL31393 provides a brief comparison of all bills introduced in the last Congress.)
House-Passed Bill (H.R. 4)
Work Rules. The Personal Responsibility, Work, and Family Promotion Act
increases the all-family minimum participation requirement from the current 50% level to
70% by FY2008, ends the separate higher rate for 2-parent families, and requires 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 replaces the fixed base year (FY1995)
for the general caseload reduction credit with a moving and more recent base, but it creates
a “super-achiever” caseload reduction credit for a state whose FY2001 caseload was at least
60% smaller than that of FY1995 (without regard to intervening policy changes). The bill
requires 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 continues the 5-year time limit on federally paid
basic assistance, along with the 20% hardship exemption. It allows states to make TANF a
mandatory partner in the workforce investment system.
Other Provisions. The bill allows 50% of TANF funds to be transferred to the
CCDBG (up from 30% in current law). Further, it appropriates $2.917 yearly in mandatory
child care funds through FY2008 (a $1 billion increase over 5 years). It authorizes
appropriation of an annual average of $1.7 billion over 5 years for the CCDBG, with the sum
rising from $2.1 billion for FY2003 to $3.1 billion for FY2008. It creates new “superwaiver”
authority for states to coordinate rules of specified programs for low-income families.
Programs and activities covered by this waiver provision are TANF, Welfare-to-Work grants,
SSBG, Job Opportunities for Low-Income Individuals (JOLI), Title I of WIA (excluding
JOB Corps), Adult Education and Family Literacy Act, CCDBG, U.S. Housing Act
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(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 be waived.
Funds could not be transferred from one account to another, and projects could not increase
federal costs. Waiver approval would be required by each relevant Secretary. The bill also
would authorize five states to replace food stamps with demonstrations of food assistance
block grant projects. The bill establishes marriage promotion matching grants ($100 million
yearly) and allows states to use federal TANF funds as the 50% state match. It also
appropriates $100 million annually for research and demonstration projects and technical
assistance and specifies that these funds must be spent primarily on activities allowed under
marriage promotion grants. It also establishes fatherhood projects ($20 million authorized
annually through FY2008), ends the nonmarital birth bonus, and ends the high performance
bonus, replacing it with an employment achievement bonus ($500 million appropriated for
FY2004 through FY2009). The bill makes improving child well-being the overall TANF
purpose and adds “reducing poverty” to the goal of ending dependence on government
benefits. The bill also extends abstinence-only education funding for 5 years and transitional
Medicaid for one year.
Senate Republican Leadership Bill (S. 5)
Work Rules. Work rules (participation rates, hours of work, countable activities) are
the same as in H.R. 4. However, in calculating state work participation rates, S. 5 does not
allow states to exclude families in their first month of assistance (an option in H.R. 4).
Other. Transfer of fund rules, child care provisions, abstinence education funding,
fatherhood grants, and transitional medical assistance provisions are the same as in H.R. 4.
However, S. 5 changes the super-waiver provisions, disallowing a waiver that would reduce
or eliminate TANF work participation rates. It doubles funding for healthy marriage
promotion matching grants (to $200 million annually), increases the federal matching rate
from 50% to 75% and, like H.R. 4, provides that TANF funds used for marriage promotion
shall be treated as state matching funds. S. 5 also appropriates $100 million in outright
grants that must be spent on healthy marriage promotion (as noted above, the counterpart
provision in H.R. 4 merely requires that the extra $100 million be used “primarily” for
marriage promotion). The bill permits states to privatize the determination of eligibility for
food stamps and to use TANF work and procedural rules for persons who apply for both
TANF and food stamps. It also indexes funding (at one-half the rate of inflation) for the
food assistance block grant projects proposed in H.R. 4. The bill also imposes new anti-fraud
rules, requiring states to check an Federal Bureau of Investigation database on wanted felons
against names of applicants for TANF, food stamps, SSI, or unemployment compensation
and to check earnings reported by TANF recipients with amounts shown on the National
Directory of New Hires.
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
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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
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.
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“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.
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
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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.
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
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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,
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
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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 FY2002, $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
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.
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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. Passed House
February 13.
H.R. 535 (AcevedopVila)
TANF. Provides access to “tools” for moving from welfare to work. Introduced
February 5, 2003; 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, 2003; referred
to Ways and Means Committee.
H.R. 625 (Stark)
TANF. Makes poverty reduction a TANF goal and provides grants for that purpose.
Introduced February 5, 2003; referred to Ways and Means Committee.
H.R. 706 (Stark)
TANF. Provides $100 million grant program for projects to promote “secure and
healthy” families. Introduced February 11, 2003; referred to Ways and Means Committee.
S. 5 (Talent)
TANF reauthorization. Appears substantially the same as House-passed H.R. 4.
Introduced February 14.
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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, 2003.
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. 316 (Corzine)
TANF. Specifies assessment procedure; treats work-barrier removal as countable work.
Other changes. Introduced February 5, 2003.
S. 327 (Levin)
TANF. Allows vocational educational training to be counted as a TANF work activity
for 24 months. Introduced February 6, 2003.
S. 367 (Rockefeller)
TANF reauthorization. Increases block grants and supplemental grants, replaces the
caseload reduction credit with an employment credit. Many other provisions. Introduced
February 12, 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.
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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.
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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