Revised July 23, 2007

USING TANF OR MOE FUNDS TO PROVIDE SUPPLEMENTAL ASSISTANCE TO LOW-INCOME WORKING FAMILIES
by Liz Schott

As states revisit their welfare reform approaches in the wake of the TANF changes in the Deficit Reduction Act of 2005, some states have implemented or are considering policies that expand support to families transitioning into employment and off of basic TANF assistance programs. In most states, families lose eligibility for TANF cash assistance at income levels that are well below the poverty line (and almost no state has eligibility thresholds above the poverty line). Most employed TANF leavers have low wages and research over the last decade has documented that families that have left welfare for work continue to face hardships in making ends meet.[1]

Research also has shown that policies that “make work pay” by providing benefits to working families improve employment outcomes for families because they serve as an effective incentive for families to find and keep jobs. This research also has demonstrated that these policies can reduce poverty by providing income assistance on top of the earnings families receive when they go to work.[2]

In the last year, at least four states — Arkansas, Michigan, Utah, and Virginia — have begun to provide a new supplemental benefit to working families that have left the state’s basic TANF cash assistance program. The monthly benefit amounts vary among the four states; in two states, a family can receive an amount equivalent to a full TANF cash grant. The duration of the monthly benefit varies among these four states as well — ranging from three to 24 months. (See Table 1 and Appendix 1.) In addition, at least seven other states — Minnesota, Nebraska, New Hampshire, New Mexico, Oregon, Vermont, and Washington State — have enacted legislation or taken steps to establish a worker supplement program in recent months. (See Appendix 2.).

States are considering such policies not only because of their positive effects for families, but also because providing cash (or cash-like) assistance to working families that are not part of a state’s basic TANF caseload can help states meet TANF work requirements that they face under the DRA. Under the DRA, states must meet higher work participation rates than they were required to meet in the past and, because of changes in the law and the choices made by HHS in implementing regulations, achieving a high work participation rate will be more difficult than in the past. By providing a TANF or MOE-funded benefit that meets the definition of “assistance” under the TANF rules, a state can count these working families towards its work participation rate and boost the rate it achieves. Thus, the approach can help states meet federal requirements and assist in avoiding federal fiscal penalties, while also supporting low-income families as they transition into employment.

This paper provides guidance for states and policymakers considering a “worker supplement” program and reviews the choices made and lessons learned by the four states that have already implemented such a program for TANF leavers. It also analyzes and considers the design decisions that a state faces in establishing and implementing such a program. Specifically, the paper discusses:

• How families receiving assistance in a worker supplement program are considered in the TANF work participation rate calculations;

• The groups of working families a state may choose to serve in such a program — for example, families leaving TANF for work or broader groups of working families — as well as the eligibility requirements states might use in such programs;

• The benefits and services states can provide through such a program, including design issues such as how much will the benefit be, will it be a flat amount or vary based on other income or family characteristics, for how long will the benefit be provided, and the form in which the supplement payment will be provided;

• The implications of financing such a program with either TANF or MOE funds, including the extent to which federal TANF time limit provisions and child support retention rules will apply to families in the program;

• Issues relating to how the program is administered, including the enrollment process, ongoing eligibility maintenance, and verification of employment hours; and

• The interaction of this benefit with a family's eligibility for other benefits such as Medicaid, food stamps, and child care subsidies.

Click here for the PDF of full report (26pp.)

End Notes:

[1] See, “Final Synthesis Report of Findings from ASPE ‘Leavers’ Grants,” by Greg Acs and Pamela Loprest, The Urban Institute, November 2001, http://aspe.hhs.gov/HSP/leavers99/synthesis02/index.htm.

[2] See, “Does Making Work Pay Still Pay? An Update on the Effects of Four Earnings Supplement Programs on Employment, Earnings, and Income” by Charles Michalopoulos, MDRC, August 2005. Executive summary at: http://www.mdrc.org/publications/414/execsum.html, full report at: http://www.mdrc.org/publications/414/full.pdf.