Welfare Reform: An Issue Overview

Welfare Reform: An Issue Overview

Order Code IB93034
CRS Issue Brief for Congress
Received through the CRS Web
Welfare Reform: An Issue Overview
Updated October 28, 2004
Vee Burke
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Major Programs for Low-Income Families
FY2005 Appropriations
TANF Trends and Data
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
H.R. 4 — House-Passed Bill and Senate Finance Version
Work Rules
Other Provisions
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
Marriage Promotion
Welfare-to-Work (WtW) Grants
Victims of Domestic Violence
Transportation for TANF Recipients
Transfer of TANF Funds
Housing Vouchers for TANF Recipients
Waivers
Tax Credits for Hiring Welfare Recipients
Individual Development Accounts (IDAs)
Unspent TANF Funds
Child Support Collections
TANF Bonus Funds
LEGISLATION
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Welfare Reform: An Issue Overview
SUMMARY
Congress has voted for the eighth time to
has launched 29 projects that it says are to
grant a temporary extension, on FY2002
strengthen marriage and families (including
terms, to TANF and related programs of
research and evaluation) at a total cost of
mandatory child care, state grants for absti-
$94.5 million. Most are multi-year projects.
nence education, and transitional medicaid
The newest extension (H.R. 5149) was passed
The two versions of H.R. 4 revise and
by both houses on September 30 and signed
fund TANF and related programs for five
into law (P.L. 108-308) the same day. It runs
years. Both raise the TANF work participa-
through March 31, 2005.
tion standard (eventually to 70%) but, in
different ways, permit reduction of the stan-
Because of disputes over proposed
dard, appropriate similar amounts for marriage
changes to TANF and the lack of pressure for
promotion, authorize funds for fatherhood
action, Congress has failed to pass a perma-
grants, increase weekly work hours (by differ-
nent reauthorization law since the original
ent amounts), and allow partial credit for work
five-year program ended on September 30,
hours below their separate and different stan-
2002. The TANF block grant, under which
dards. The Finance Committee bill also gives
caseloads have fallen 50%, is widely consid-
extra credit for hours above its standards and
ered a success, and many governors contend
increases the list of countable work activities).
that pending bills would force them to curtail
productive practices. The House passed a
The House-passed bill raises the work
comprehensive five-year bill (H.R. 4) in
week for TANF recipients to 40 hours (but
February 2003 (and a similar one in 2002), but
gives partial credit for hours above 24). The
no bill has reached a vote on Senate passage.
Finance version of H.R. 4 lengthens the TANF
Senate floor action on the Finance Committee
week — to 34 hours for single parents without
version of H.R. 4 stalled on April 1, 2004,
a preschooler (24 hours for those with a child
when Republicans failed to win a vote to limit
under 6) and 39 hours for a two-parent family
debate. Before the deadlock, the Senate voted
(55 hours if the family receives federally
to increase mandatory child care funding by
funded child care). See CRS Report RL32210
$7 billion over five years, compared with
for a side-by-side comparison of the two bills
current funding. Major differences between
with current law.
the two versions of H.R. 4 include work rules,
work activities, and child care funding.
FY2002 TANF work participation rates
fell slightly, to 33.4% for all families. In
Three Senate subcommittees have held
California and New York, which account for
hearings related to creating TANF grants for
about 30% of all TANF families, the overall
marriage promotion — a major innovation in
TANF caseload, including families in separate
both versions of H.R. 4, and the Department
state-funded programs, climbed almost 2% in
of Health and Human Services (HHS) has an-
the first half of FY2004, and March numbers
nounced plans to fund a Health Marriage
topped those of last year. July 2004 food
Resource Center as a repository and distribu-
stamp enrollment, at 24.3 million persons,
tion center for information and research on
was up 11% from a year earlier and the high-
marriage. Data from the Administration for
est since October 1996.
Families and Children (ACF) show that HHS
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MOST RECENT DEVELOPMENTS
Congress has voted to extend TANF and related programs of mandatory child care, state
grants for abstinence education, and transitional medicaid through March 31, 2005. Both
houses passed the extension bill (H.R. 5149) on September 30, the deadline, and the
President signed it the same day (P.L. 108-308). This marks the eighth extension of these
programs, which have operated on FY2002 terms since the expiration of the original
five-year appropriation. On October 12, the Department of Health and Human Services
(HHS) announced award of $200 million in bonuses to 37 states and the District of Columbia
for TANF high performance in FY2003. On September 30 HHS awarded bonuses to four
of the five states that reduced non-marital birth rates between 1999-2000 and 2001-2002.
On September 15, the Senate Appropriations Committee ordered reported its bill (S. 2810)
to provide FY2005 appropriations for HHS. On September 9 the House passed its HHS
appropriation bill (H.R. 5006). Neither bill includes TANF funding, but the conference
report on the FY2005 budget (not yet passed by the Senate) assumes a five-year extension
of TANF and related programs at current funding levels, plus creation of marriage promotion
grants. On September 8, the Agriculture Department (USDA) announced state bonuses for
high performance in the food stamp program. On August 23, the HHS said that the official
TANF caseload decreased by 36,501 families (1.8%) during 2003. The official count omits
a rising part of the overall caseload — families in separate state-funded programs.
BACKGROUND AND ANALYSIS
Major Programs for Low-Income Families
FY2003 estimated spending for low-income children and their families by selected
major income-tested programs reached $191.2 billion, up 11% from the FY2002 (revised)
figure, $170.7 billion (Table 1). Federal funds paid 79% of the total. Spending rose from
10% to 12% for all categories of aid. The 4 largest spending programs for families with
children were Medicaid, $77.3 billion; Earned income Tax Credit (refundable part) $34.2
billion; food stamps, $20.7 billion; and TANF ongoing cash aid, $13.9 billion. This
accounting excludes spending for education benefits, job training, work programs, and
various other services, including child care.
The official national TANF caseload in December 2003 held 2.008 million families,
compared with the record peak of 5.084 million in March 1994 (and with 2,045 million a
year before). For state caseloads, see [http://www.acf.hhs.gov/TANF_data.htm]. (If families
in separate state-funded programs were included, the estimated December total would be
about 2.2 million.) The food stamp caseload, steadily rising for two years, reached 24.3
million persons in July, the highest number since October 1996, and up 11% from a year
before. The all-time peak was 28 million in March 1994. (See Figure 1 for TANF and food
stamp caseloads.)
In FY2003, ongoing TANF cash was received by a monthly average of
5 million children; food stamps went to a monthly average of 17.4 million children. The
number of children enrolled in Medicaid declined from 25.5 million in FY2002 to 25.3
million in FY2003, and the number of enrolled parents climbed from 12.9 million to 14
million. Enrollment in the State Children’s Health Insurance program (SCHIP) rose from
5.4 million to 5.8 million children and from 0.3 million to 0.4 million adults.
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Table 1. Estimated Income-Tested Outlays for Children and Their
Families from Selected Major Programs, FY2002 and FY2003
Federal Funds
State/Local Funds
Recipientsa
($ in billions)
($ in billions)
(millions)
FY2002 FY2003
FY2002 FY2003
FY2002
FY2003
Cash aid
$45.8
$53.9
$6.6
$6.2
—
—
(TANF)b
(6.5)
(7.7)
(6.6)
(6.2)
(5.1)c
(5)c
(EITC — refunds)d
(29.0)
(34.2)
0
0
(16.6)
(19)
(Child tax credit — refunds)d
(5.0)
(6.4)
0
0
(8.6)
n.a.
(SSI) (children only)
(5.3)
(5.6)
(0.19)e
(0.2)e
(0.91)
(0.95)
Food benefits
30.2
33.4
1.3
1.4
—
—
(Food stamps)f
(16.7)
(19.3)
1.3
1.4
(15.7)c
(17.4)c
(Subsidized meals)g
(9.1)
(9.6)
n.a.
n.a.
(18.0)c
(18.5)c
(WIC)
(4.4)
(4.6)
n.a.
n.a.
(7.5)c
(7.6)c
Major medical aid
40.4
45.0
29.1
32.3
44 c
45.7 c
(Medicaid)h
(36.7)
(40.6)
(27.7)
(30.6)
(38.4)c
(39.3)c
(SCHIP)i
(3.7)
(4.4)
(1.4)
(1.7)
(5.7)c
(6.2)c
Major housing aid
17.3
19.0
0
0
23
2.33
(Public housing)J
(3.7)
(3.5)
0k
0k
(0.538)l
(0.537)l
(Section 8)m (9.3)
(10.5)
0
0
(1.66)
l
(1.69)l
(Rural housing service programs)n
(4.3)
(5.0)
0
0
(0.1)o
(0.1)o
Note: Except in the case of Medicaid, figures include 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.
a. Caution: Average monthly number of individuals, except: subsidized meals, estimated daily average
participation in school meal and child care programs by children from lower-income families; Medicaid,
yearly total estimates of enrollment; EITC and child credit, yearly total number of tax returns; SSI,
number of children in September, and housing, number of households at end of year.
b. Includes basic cash assistance, non-recurring short term aid, refundable tax credits, and contributions to
IDAs. Excludes outlays for work activities, child care, supportive services and other activities to promote
TANF goals. Recipient count includes only persons receiving basic ongoing aid.
c. Includes parents. Child totals: food stamps (includes Puerto Rico), 10.3 million in FY2002, 11.4 million
in FY2003; WIC, 5.7 million in FY2002, 5.8 million in FY2003; TANF, 3.8 million in FY2002 (FY2003
data are not available); Medicaid, 25.5 million and 25.3 million, respectively; SCHIP, 5.4 million and
5.8 million, respectively.
d. Credit earned in calendar year preceding the fiscal year (example, CY2002 for FY2003). Excludes credits
used to offset tax liability. FY2003 EITC spending and recipient data are preliminary.
e. Federally administered state funds only (excludes state-administered programs).
f. Estimate. Includes Puerto Rico’s nutritional assistance program. Does not include employment/training
spending.
g. Estimate. Includes income-tested parts of school lunch, school breakfast, and child care food programs; also
summer food service program. Excludes cost of commodities.
h. Spending estimates are from the March 2002 and March 2003 baselines of CBO. The federal funding share
is estimated at 57% of total spending.
i. Spending estimates are based on state expenditure reports.
j. Spending and recipient data are based on the FY2000 percentage of public housing units that included
children (44.5%) and assume that spending for families with and without children is equally distributed.
Expenditure data include the public housing capital fund and operating fund, HOPE VI, and the public
housing drug elimination program.
k. Localities accept below-tax payments in lieu of property taxes on public housing projects.
l. Year-end data representing public housing-owned units under management and Section 8 units eligible for
payment. Estimates assume that the proportion of units occupied by families with children has not
changed since 2000.
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m. Spending and recipient data are based on the FY2000 percentage of Section 8 housing units that included
children (47.2%). Section 8 data include vouchers and project-based contracts. Outlay data are not
available for each component, and estimates assume that voucher and project-based contract costs are
proportional to the distribution of units in each component. This assumption may be faulty, as per-
voucher costs actually may exceed per-project-based costs. Estimates also assume that outlays are evenly
distributed across family types, but it is likely that subsidies to families are greater than to others.
n. Subsidized loans to low-income persons for home ownership (Section 502) and rental aid (Sections 515/521).
o. Represents housing units, each of which generally can accommodate one family. Assistance was provided
to 94,600 families in FY2002 and 89,500 in FY2003. The Rural Housing Service does not collect data
on children in households.
FY2005 Appropriations
The House has passed its FY2005 HHS appropriation bill (H.Rept. 108-636), and the
Senate Appropriations Committee has approved its bill (S.Rept. 108-345). The two bills
provide identical amounts for some welfare-related items, including: monitoring children
of prisoners, $50 million; individual development accounts, $24.9 million; community-based
abstinence education, $104.5 million (including $4.5 million transferred for evaluation
research from a research fund under Section 241 of the Public Health Service Act); and Title
XX social service block grant, $1.7 billion. These amounts fulfilled budget requests, except
for abstinence education ($81.9 million short). For the compassion capital fund, the House
voted $55 million, and the Senate Committee, $47.7 million, both well below the budget
request of $100 million. For the HHS Office of Faith-Based and Community Initiatives, the
House granted the budget request of $1.4 million, but the Senate committee cut the amount
to $1.386 million. Neither bill provides any funding for two items in the President’s faith-
based initiative that Congress has not authorized — maternity group homes and grants for
responsible fatherhood programs.
TANF Trends and Data
Figure 1. AFDC/TANF Families and Food
Stamp Households, in Millions
FY1989-FY2003
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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 these programs into a block ($16.6 billion annually through FY2002 and
entitles each state to a fixed yearly sum based on pre-TANF funding. It also provides an
average of $2.3 billion annually in a new child care block grant. 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 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 (50% of all families, including 90% of two-parent families — but these
standards are lowered for caseload declines from FY1995 levels). States must 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 five-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). For single parent families, the law sets a TANF work week of 30 hours
(20 hours if they have a child under 6, as most TANF single parents do). 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. (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 House-
passed H.R. 4 extends TMA for one year; the Finance H.R. 4 substitute, for five 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 six 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). For FY2003 (as for FY2002), Congress
appropriated $4.8 billion: $2.1 billion in discretionary funds, $2.7 billion in mandatory funds.
States may transfer some TANF funds to CCDF; also, they use TANF block grants for
“direct” child care. FY2002 spending for TANF-funded child care (federal and state dollars)
totaled $2.3 billion, exclusive of $1 billion transferred to CCDF and state spending that also
could be counted toward sums needed to qualify for matching child care entitlement funds.
Congress appropriated $2.1 billion in discretionary funds for FY2004. Mandatory funding
for FY2004 remained at the $2.7 billion level of FY2002 and 2003.
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 five 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 seven 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 five 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) granted food stamp eligibility to
noncitizens after their first five years in this country and to alien children regardless of their
date of entry or length of U.S. residence.
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 five years were estimated at $23.3 billion. P.L. 105-33 provided $1.5 billion over five
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.) The CARE Act (S.
476), approved by the Senate April 9, proposed to increase SSBG funding for FY2003 and
FY2004 (to $1.975 and $2.8 billion, respectively). However, Congress appropriated $1.7
billion for FY2004, and the House voted the same sum in its 2005 appropriation bill.
TANF Reauthorization Bills
(See CRS Report RL32210 for a side-by-side comparison of the two major bills of 2003.)
H.R. 4 — House-Passed Bill and Senate Finance Version
Work Rules. The House bill, passed on February 13, 2003, and the Senate Finance
Committee version of H.R. 4 (PRIDE), ordered reported on October 3, 2003, both increase
the all-family minimum participation requirement from the current 50% level to 70% by
FY2008 (but, in different ways, permit reduction from the standard), end the separate higher
rate for 2-parent families, and require TANF adults to engage in work or self-sufficiency
activities more hours weekly than current law. The House bill requires an average of 40
hours per week (calculated on the basis of a 160 hour month, equivalent to 37 hours weekly)
for all recipients except teen parents without a high school diploma. The Senate Committee
bill sets the work week at 34 hours for single adult parents without a child under 6, up 4
hours from current law. The House bill allows only a list of 6 direct work activities to count
toward the required 24 hour week (except for three months within 24, when states could
count any TANF-promoting activity). The Senate Committee plan retains the existing law’s
list of 12 countable activities and — after 24 hours spent in one of these activities — permits
five specified other activities, including postsecondary education, to be counted. See Table
1. The Senate bill also permits “parents as scholars” programs for some TANF recipients,
whose participation would count as work. Both bills provide credits to reduce work
participation rates. The House bill provides a caseload reduction credit (smaller than the one
in current law). The Finance bill creates a credit for employment of families who leave the
rolls; this credit is capped so that effective work targets cannot be reduced below 10% in
FY2004, 20% in FY2005, 30% in FY2006, 40% in FY2007, and 50% in FY2008.
Other Provisions. Both bills maintain funding at current levels for basic block
grants, supplemental grants, and the contingency fund (but ease access to the contingency
fund). Both bills retain current time limit rules. The House bill requires states to end cash
aid for a family for at least one month if the parent fails to engage in required activities for
two months. Both bills end the nonmarital birth bonus and the high performance bonus and
replace the latter with employment achievement bonuses. The House bill allows 50% of
TANF funds to be transferred to the CCDBG (up from 30% in current law). Both bills
establish marriage promotion grants (see Marriage Promotion under TANF Issues below).
Both bills extend abstinence education grants for five years ($50 million yearly). The House
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bill creates new “superwaiver” authority for states to coordinate rules of 9 specified programs
(including food stamps) for low-income families. (Also pending in the Senate are several
TANF bills that have received no Committee action: S. 5, S. 367, S. 448, and S. 1443.)
TANF Issues
Definition of “Work Activities” and the Role of Education
What activities are countable in calculating a state’s work participation rate? 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). Participation in vocational educational training and
completion of high school can account for no more than 30% of 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). 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, and Wisconsin (Community
Service program) are TANF maximum benefits for a 3-person family (as of January 2004)
high enough to provide the required sum for 30 hours of work at the federal minimum wage
rate. 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 September 23, 2003, that work participation rates declined in FY2002
to 33.4% for all families and 49.4% for two-parent families (compared with 34.3% and
51.1%, respectively, in FY2001). All jurisdictions except Guam met their all-family adjusted
minimum standards, but 5 of the 30 jurisdictions with two-parent families in the TANF
program did not. Failing the two-parent standard were Arkansas, Delaware, Guam,
Missouri, and West Virginia. Participation rates of the states that had continuing waivers
were calculated under work rules of the waivers. In the absence of waivers, national
participation rates would have been lower (28.9% for all families and 44.2% for two-parent
families). The statutory minimum work rates for FY2002 were 50% 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 21 states. See [http://www.acf.dhhs.gov/programs/ofa/
2002/im2003-2.htm] for state rates. Both versions of H.R. 4 end the higher two-parent work
rate.
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Child Care Funding
The level of child care funding has emerged as a key issue in TANF reauthorization.
House-passed TANF bills in 2002 and 2003 (H.R. 4737 and H.R. 4, respectively) proposed
to increase mandatory child care funding by $1 billion over five years ($200 million per
year), resulting in a yearly sum of $2.9 billion. The Senate Finance version of H.R. 4 would
raise mandatory funding by $6 billion above the House bill over five years (an increase of
$1.2 billion per year), resulting in an annual sum of $4.1 billion.
“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. 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.) These charitable choice
laws state that acceptance of federal funds does not affect a religious institution’s exemption
from the ban in Civil Rights law on religiously based employment discrimination. After his
inauguration, President Bush proposed a “faith- based initiative,” which set expansion of
charitable choice as a key goal. The House voted (H.R. 7 in 2001) to extend charitable
choice rules to nine new program areas and to offer tax incentives for charitable giving.
However, the Senate did not pass this legislation. The President then turned to executive
action, issuing an executive order (No. 13279) on December 12, 2002, that directed six
Cabinet officers and the Administrator of AID, “to the extent permitted by law,” to adopt
charitable choice principles (laws governing Head Start, the Workforce Investment Act
[WIA], and substance abuse prevention and treatment grants have provisions forbidding
religious discrimination in hiring). Between January 4 and July 16, 2004, the Departments
of Agriculture, Education, Health and Human Services (HHS), Housing and Urban
Development (HUD), Justice, and Labor, and the Veterans Administration, issued final
regulations to incorporate charitable choice principles in their social service programs. The
new regulations spell out the terms under which faith-based organizations can provide
federally funded services. See CRS Report RS21924, Charitable Choice: Expansion by
Executive Action.
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. (See CRS Report RS21844 for a brief
account of the Compassion Capital Fund.) The President’s FY2005 budget repeats requests
for two other faith-based initiatives not yet funded: responsible fatherhood grants and
second-chance maternity homes. The CARE Act (S. 476), passed by the Senate April 9,
2003, has no charitable choice provisions; but, in a title called Compassion Capital Fund,
it authorizes $150 million for FY2003 (and “such funds” as needed for FY2004-FY2007) in
grants to nongovernmental organizations for technical assistance and other support to
community-based organizations. H.R. 7, the Charitable Giving Act, passed by the House on
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September 17, 2003, also provides compassion capital funding. The conference agreement
on the FY2005 budget assumes funding for H.R. 7.
Using its new privatization authority, Wisconsin has contracted out the administration
of TANF in some counties, and a 2002 General Accounting Office survey 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). In late October, 2004, Wisconsin
officials said the state’s largest private W-2 contractor, Opportunities Industrialization Center
of Greater Milwaukee, had failed most performance standards and might lose its contract.
In late April Florida submitted requests to HHS for waivers of existing law requiring public
employees to determine eligibility for food stamps and Medicaid. The state said it wanted
to privatize eligibility determination across all programs. In late June the Agriculture
Department told Florida what conditions it must meet to obtain a food stamp waiver. H.R.
4766, as passed by the House July 20, prohibits federal cost sharing for any food stamp
operations performed outside the United States. Effective October 1, 2004, this would apply
to overseas centers handling calls about electronic benefit transfers (EBT). Most EBT cards
for food stamps include TANF benefits.
Marriage Promotion
Both the House-passed H.R. 4 and the Finance Committee version of H.R. 4 (S.Rept.
108-162) appropriate $100 million annually for 50% matching competitive grants for
programs to promote and support healthy, married two-parent families. (The grants are
funded by repeal of the out-of-wedlock birth bonus in current law.) In addition, both bills
appropriate $100 million yearly for research and demonstration projects and technical
assistance and require that most of this money be devoted to marriage promotion activities.
The House bill specifies that the $100 million demonstration fund must be used “primarily”
for marriage promotion activities; the Senate bill earmarks $80 million for the purpose. If
states use other TANF federal funds for marriage promotion, the House bill requires these
funds to be treated as matching funds for the competitive grants; the Senate bill allows this
treatment. The two bills list the same eight activities or programs as allowable uses of
marriage promotion funds, but the Senate bill adds language to ensure that participation is
voluntary and requires grant recipients to consult with experts in domestic violence issues.
Promotion of marriage is an allowed use of TANF funds under current law. One of the
statutory purposes of TANF is to promote the formation and maintenance of two-parent
families. Another goal is to end dependency of needy parents on government benefits, and
the law lists “marriage” as one of the means to this end. During FY2002, 22 states and the
District of Columbia reported spending $215.3 million in TANF funds for two-parent family
formation; the remaining 28 states reported no expenditures for this purpose. Data from HHS
show that the Administration for Children and Families (ACF) has made multi-year grants
totaling $94.5 million in projects to strengthen marriage and families (including research and
evaluation). The grants were from the following ACF offices: Office of Planning, Research,
and Evaluation, $81.7 million (most for seven- to nine-year projects); Office of Refugee
Resettlement, $5.4 million; Children’s Bureau, $4.1 million; Office of Child Support, $3.1
million (these grants require non-federal matching funds); and Office of Community
Services, $0.1 million. (In some cases strengthening marriage is one program component
among many.)

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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. The 1997 Balanced Budget Act (P.L. 105-33) 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. 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. In response to complaints that narrow eligibility conditions were inhibiting
enrollment, Congress liberalized terms in 1999, and the next year it gave states and
competitive grantees another two years in which to spend WtW funds. As of September 30,
2002, about 19% of net WtW awards remained unspent. The FY2004 appropriations act
(P.L. 108-199) rescinded any WtW formula grants amounts allotted to states from funds
appropriated for FY1999 that were unspent on January 23, except for certain close-out costs.
(For more background, see CRS Report RS20134.)
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.)
Transportation for TANF Recipients
The 1998 transportation act (P.L. 105-178) authorized $750 million in 50% matching
funds over five years for matching grants for job access grants to serve welfare families and
other low-income persons (income not above 150% of the poverty guideline) and reverse
commute grants to suburban employment centers to serve all populations. The law limits
reverse commute funding to $10 million yearly. As noted above, states may use TANF
funds, within limits, as state matching funds for these grants. Appropriations rose from $75
million for FY1999 to $149 million for FY2003, but were about $125 million for FY2004.
In FY1999, the Federal Transit Administration (FTA) awarded competitive grants to 206
projects, but Congress now earmarks virtually all of the funding. The FY2005 budget
proposed to consolidate these grants with others, but Congress did not reauthorize the
program. Instead, it extended the program, on current terms, through May 31, 2005. The
President on February 24 issued an executive order (No. 13330) directing agencies to
coordinate transportation services. This has resulted in an initiative called United We Ride.
See [http://www.fta.dot.gov/].

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Table 2. Selected Work Provisions of House-Passed and
Senate Finance Committee Versions of H.R. 4
House-Passed H.R. 4
Senate Committee H.R. 4 Bill
Required
Rates increased yearly, from 50% in
Same as House bill
participation rates
FY2004 to peak of 70% in FY2008
Credits against
Caseload reduction credit. Reduces target Employment credit. Reduces target rate
participation rate
rate by 1 percentage point for each
by the percentage of families who leave
percentage cut in caseload from a moving cash aid with a job for 2 consecutive
base year. By FY2007 base reaches
quarters. Caps credit so that effective
FY2003.
target rates cannot be cut below 50% by
FY2008.
Work activities
6 direct work activities (unsubsidized
17 activities, 12 in current law plus 5
jobs, subsidized private jobs, subsidized
new ones. Gives credit — after 24
public jobs, on-the-job training,
hours weekly in current law activities
supervised work experience, and
— for postsecondary education, adult
supervised community service).* Gives
literacy, substance abuse services,
credit — after 24 hours weekly in direct
barrier-removal services, and
work — for any other state-defined
grandfathered pre-TANF waiver
activity leading to self-sufficiency. Note:
programs and activities of any state.
for three months any state-chosen activity Also permits time-limited participation
could be deemed to meet 24 hour direct
in specified “rehabilitation” activities.
work rule.
Work hours
40 hour weekly average — with 24
Single parent — 24 hours if have child
“core” hours (direct work). Note: retains
under 6 (34 hours otherwise). Two-
current law special rule for teen parents
parent family — 39 hours (55 if receive
without high school diploma. (satisfactory child care). Like House bill, retains
school attendance or 20 hours of
special rule for teen parents without
education directly related to work).
high school diploma.
Partial credit for
Pro-rated credit for hours above 24 but
Partial credit for hours below standard
work hours below
below 40. No credit for hours below 24.
and extra credit for hours above
the standard
standard. For single parents, no credit
for hours below 20. For two-parent
families, no credit for hours below 26
(below 40 if receive federally funded
child care).
Universal
Requires development of a self-
Very similar to House bill
engagement
sufficiency plan for each family with a
work-eligible person. Sets penalty for
failure to establish plans.
Child care
Appropriates $2.9 billion in entitlement
Same as House bill. However, the
(entitlement
funds for each of FY2004 through
Senate amended the bill to provide $4.1
funding)
FY2008 (a 5-year increase of $1 billion
billion for each of 5 years (a $7 billion
over current law).
increase over 5 years from current law).
* Direct work activities in House bill exclude three activities that have priority status in current law — job
search, vocational educational training, and providing child care for community service participant had been
awarded.
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 state TANF
funds, within the overall 30% transfer limit, as state matching funds for job access grants to
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provide transportation services to TANF recipients and ex-recipients, noncustodial parents
of TANF children, and those at “risk” of becoming eligible for TANF. P.L. 105-178 cut the
share of funds that could go to SSBG to 4.25%, effective in FY2001. However, Congress
since has continued it at 10%, year by year. In passing TANF reauthorization bills, the House
has twice voted (H.R. 4737 in 2002 and H.R. 4 in 2003) to allow states to transfer 50% of
TANF funds to CCDBG. P.L. 108-199 (FY2004 appropriations) set the SSBG transfer limit
SSBG at 10%, but the House-passed FY2005 appropriation bill (H.R. 5006) reduces it to
4.25%. (The Senate Finance Committee appropriation bill retains the 10% transfer cap.)
During FY2003, states transferred 11% of TANF funds ($1.9 billion) to CCDBG and 6%
($948 million) to SSBG.
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 RS21591). The FY2000 and
FY2001 budgets requested funding for new Welfare to Work (WtW) housing vouchers, but
Congress denied the requests, and subsequent budgets have sought no new WtW housing
vouchers. The FY2005 budget proposes to replace Section 8 housing vouchers with a block
grant to local public housing authorities. It is similar to a proposal called Housing Assistance
for Needy Families (HANF), that was made last year but not adopted by Congress. House
and Senate Appropriation Committees have voted to increase Section 8 housing vouchers for
FY2005. The administration sought $13.1 billion; appropriation committees have proposed
$14.7 billion (House) and $20.7 billion (Senate). For a discussion of the use of housing aid
by TANF recipients, see CRS Report RL32104.
Waivers
Before passage of TANF, many states received waivers from AFDC rules to undertake
program changes; they were allowed to continue these waivers, even if inconsistent with
TANF rules, until their scheduled expiration. Three states still have pre-TANF waivers in
operation — Hawaii (ending September 30), Massachusetts, and Tennessee. S. 367 would
allow states, through September 30, 2008, to continue waivers scheduled to expire after
September 30, 2002. S. 263 and S. 605 also would permit states to extend waivers. The
former bill also would require HHS approval of some new applications for waivers. H.R.
4, as passed by the House (and S. 5) would establish a new program of superwaivers to
permit coordination of two or more programs. See “superwaivers” in the welfare reform
electronic briefing book. Also, see discussion under H.R. 4: Other Provisions.

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Tax Credits for Hiring Welfare Recipients
In 1997, Congress established a Welfare-to-Work (WAW) Tax Credit for hiring persons
who had received AFDC/TANF for 18 months. It also extended an existing credit called the
Work Opportunity (WOTC) for hiring certain persons, including those who had received
TANF for nine months. P.L. 106-554 added “renewal communities” to the areas where a
tax credit is offered for hiring resident youth. Both credits expired on December 31, 2003,
but Congress restored them retroactively and extended them through December 2005 in
passing the tax cut extension bill (H.R. 1308) on September 23. 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 IDAs.
According to HHS, 31 states allow TANF recipients to establish IDAs, including IDAs under
the Assets for Independence Act (AIA) five-year demonstration program created by Congress
in 1998. In the first three 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-FY2001. 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. S. 476 ,
approved by the Senate on April 9, would establish a new IDA program financed with tax
credits to financial institutions, and the U.S. budget for FY2005 recommends such a plan.
H.R. 7, passed by the House in September, continues the existing AIA/ IDA program for five
years. P.L. 108-199 appropriated $24.9 million for the AIA program for FY2004, and the
House approved the same amount for FY2005 (H.R. 5006).
Unspent TANF Funds
As of September 30, 2003, HHS reports that states had an unspent and unobligated
balance in the U.S. Treasury of $2.3 billion in TANF funds. In addition, unliquidated
obligations totaled $1.6 billion. Twelve states had no balances left to obligate: CA, CO, CT,
IL, IN, LA, MA, OR, SC, TN, VT, and WA. States may draw TANF funds from the
Treasury only for reimbursement of expenditures. The law sets no fiscal year deadline for
spending TANF dollars for “assistance,” defined by regulation as basic ongoing aid. The
House-passed H.R. 4 and the Finance Committee H.R. 4 both would permit carryover of
funds for any benefit or service.
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Child Support Collections
To receive TANF, parents must assign child support rights to the state. In FY2003,
child support enforcement offices collected $10.3 billion assigned by TANF and former
TANF families. Of this sum, $7.2 billion was distributed to former TANF families and $837
million to TANF families; most of the rest was used to reimburse federal and state
governments for 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. Both H.R. 4 and the Finance
Committee substitute for this bill have provisions to promote “responsible fatherhood” and
distribute more child support directly to families.
TANF Bonus Funds
On September 30, 2004, HHS announced award of $100 million in bonuses to four of
the five states that achieved reductions in unwed birth ratios while also decreasing abortion
rates. This was the sixth annual bonus, and it was won by the District of Columbia (for the
sixth time), New York, Maryland, and New Hampshire (the fifth state, Connecticut, received
no bonus because its abortion rate increased. On October 12, the Department announced
award of the sixth TANF high-performance bonuses: $200 million went to 37 states and the
District of Columbia , based on state rankings (absolute and relative) on various measures:
success in the workforce, job entry, participation in food stamps, coverage by
Medicaid/SCHIP, child care subsidies and percentage of children in two-parent families.
H.R. 4 and PRIDE would eliminate nonwork measures from high performance bonus award.
(and would eliminate non-marital birth bonuses). For state rankings and high performance
bonuses, see [http://www.acf.dhhs.gov/programs/opre/hpb/index.htm].
LEGISLATION
Note: All Senate bills shown were referred to the Senate Finance Committee.
H.R. 4 (Pryce)
Reauthorizes TANF, on new terms, for five years. Passed House February 13, 2003.
Senate Finance Committee rewrote the bill and ordered it reported on October 3, 2003
(S.Rept. 108-162). See text above.
H.R. 2770 (Pallone)
TANF and Indians. Provides special funding for tribal programs. Introduced July 17;
2003, referred to several committees.
H.R. 4939 (Ford)
ASPIRE Act. Provides subsidized savings accounts for children. Senate companion
S. 2751. Introduced July 22, 2004.
H.R. 5149 (Herger)
TANF and related programs. Continues programs through March 31, 2005. Introduced
September 24. Passed by both houses and signed into law (P.L. 108-308) on September 30.

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S. 5 (Talent)
TANF reauthorization. Very similar to House-passed H.R. 4, but increases marriage
funds and has new anti-fraud and food stamp provisions. Introduced February 14, 2003.
S. 262 (Bingaman)
TANF. Removes percentage limit on recipients who may receive work credit for
educational activity. Stops time clock for certain activity. Introduced January 30, 2003.
S. 263 (Bingaman)
TANF and waivers. Allows states to continue waivers scheduled to expire between
October 1, 2002 and September 30, 2007. Requires approval of applications for waivers
similar to those continued above. Introduced January 30, 2003. See also S. 605.
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 funding, adds new work activities, allows
continuation of pre-TANF waivers. Introduced February 12, 2003.
S. 448 (Dodd)
TANF reauthorization. Provides poverty reduction bonus, increases federal minimum
wage, ends time limit for those with severe work barriers. Introduced February 26, 2003.
S. 574 (Corzine)
TANF. Stops the federal time clock for months of assistance received during periods
of high unemployment. Introduced March 7, 2003.
S. 657 (Bayh)
TANF. Provides fatherhood grants within TANF. Introduced March 19, 2003.
S. 669 (Snowe)
Child support. Provides more help for ex-welfare families. Introduced March 19, 2003.
S. 770 (Feingold)
TANF. Sets due process rules and reporting rules. Introduced April 2, 2003.
S. 786 (Bingaman)
TANF. Provides grants for transitional jobs programs. Introduced April 3, 2003. See
also H.R. 3560.
S. 813 (Corzine)
TANF. Requires states to promote financial education and treat it as a countable work
activity. Introduced April 8, 2003.
S. 1443 (Carper, Nelson of Nebraska, and Collins)
TANF reauthorization. Doubles length of countable vocational education, provides
credit for part-time work, increases child care funding. Introduced July 22, 2003.
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S. 2213 (Rockefeller)
TANF. Requires research on child well-being indicators. Introduced March 12, 2004.
S. 2256 (Cantwell)
TANF. Exempts high-skill, high-demand jobs from time limit. Introduced March 30,
2004.
FOR ADDITIONAL READING
(See also the CRS Welfare Reform Briefing Book, at [http://www.congress.gov/brbk/
html/ebwlf1.shtml].)
CRS Report RL32233. Cash and Noncash Benefits for Persons with Limited Income:
Eligibility Rules, Recipient and Expenditure Data, FY2000-FY2002, comp. Vee Burke.
CRS Report RS21924. Charitable Choice: Expansion by Executive Action, 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 RL32104. Housing Assistance and Welfare: Background and Issues for the
108th Congress, by Maggie McCarty
CRS Report 97-86. Indian Tribes and Welfare Reform, by Vee Burke.
CRS Report RL32598. TANF Cash Benefits as of January 1, 2004, by Meredith Walters,
Gene Falk, and Vee Burke.
CRS Report RL32210. TANF Reauthorization: Side-by-Side Comparison of Current Law
and Two Versions of H.R. 4, by Vee Burke and Gene Falk.
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 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.
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