Chart Book: TANF at 16

PDF of this chartbook (9 pp.)

Updated August 22, 2012

We have updated our chart book for the 16th anniversary of Temporary Assistance to Needy Families (TANF), the program created by the 1996 welfare reform law to replace Aid to Families with Dependent Children (AFDC).  The chart book examines what the program is accomplishing, where it is falling short, and how policymakers could strengthen it.

How Well Does TANF Provide Income Support for Poor Families?

TANF’s early years witnessed unprecedented declines in the number of families receiving cash assistance — and unprecedented increases in the share of single mothers working, especially those with less than a high school education.  But since then, nearly all of the employment gains have disappeared, and TANF caseloads have responded only modestly to increased need during this deep and long downturn.

As the following charts make clear, TANF remains an important source of income support for a small, but vulnerable, group of families.  However, because relatively few families receive TANF and benefits are very low, TANF plays a much more limited role in helping families escape poverty or deep poverty (i.e., income below half the poverty line) today than AFDC did.

TANF’s role in providing income support to poor families has declined dramatically.

Over the last 16 years, the national TANF caseload has declined by 60 percent, even as poverty and deep poverty have worsened.  While the official poverty rate among families declined in the early years of welfare reform, when the economy was booming and unemployment was extremely low, it started increasing in 2000 and now exceeds its 1996 level.

These opposing trends — TANF caseloads going down while poverty is going up — mean that a much smaller share of poor families receive cash assistance from TANF than they did prior to welfare reform.

TANF cash benefits have not kept pace with inflation and are below half the poverty line in all states.

Not only are fewer needy families receiving TANF cash benefits, but benefit levels for those who are on TANF are extremely modest.  In the median state in 2011, a family of three received $428 per month; in 14 states, such a family received less than $300.

In all but two states, the real (inflation-adjusted) value of TANF cash benefits has declined since welfare reform’s enactment.

How Have States Spent Their TANF Dollars?

Under the 1996 welfare law, which replaced AFDC with the TANF block grant, states receive fixed federal funding each year in exchange for greater flexibility in using that funding.  Unlike AFDC, therefore, federal TANF funding does not decrease in good economic times when cash assistance caseloads fall or rise in hard economic times when cash assistance caseloads increase.  Here is a brief look at TANF funding over time and how states have spent their TANF dollars.

The TANF block grant’s value has declined by 30 percent over the last 16 years.

Because the $16.6 billion annual federal TANF block grant has not been adjusted for inflation, it has lost significant value over time.  States receive 30 percent less in real (inflation-adjusted) dollars than they did in 1997, a year when the unemployment rate averaged just 4.9 percent.  State minimum-required contributions to TANF have declined even more.  To receive their full TANF block grant, states only have to spend on TANF purposes 80 percent of the amount they spent on AFDC and related programs in 1995, and that “maintenance of effort” requirement isn’t adjusted for inflation, either.

TANF spending on cash assistance has declined dramatically.

As TANF cash assistance caseloads have dropped, so has the amount of TANF spending used for this purpose.  Federal and state TANF spending on basic assistance declined from $13.9 billion in 1997 to $9.6 billion (in nominal dollars) in 2011, the most recent year available.

States have shifted their TANF funds to pay for a broad range of services, including some that Congress did not envision when it created the block grant.

The declines in the TANF caseload, combined with broad state flexibility in the use of federal and state TANF funds, freed up substantial resources that states have used to fund other services.   In 2011, states used just 29 percent of TANF funds to provide basic assistance, compared to 71 percent in 1997.

In TANF’s early years, states used some of the freed-up funds for services directly related to welfare reform, such as increased child care assistance for recipients participating in work activities and low-income working families.  As more funds were freed up, however, states increasingly used TANF funds to cover the costs of services that the TANF statute allows but that Congress did not anticipate, such as child welfare services.

What Is TANF’s Record of Success?

In the early years of welfare reform, the combination of a strong labor market, expansion of the Earned Income Tax Credit, Medicaid improvements, and state policies such as work mandates and work supports (like child care assistance) contributed to increased employment among participants in TANF.  At the same time, however, many families left the welfare rolls withoutgaining employment, leading to a substantial increase in the number of families disconnected from both welfare and work.

Over the years, TANF has become less effective both in assisting working families affected by economic downturns and in helping very-low-income families in crisis.  The result is a weakening safety net that is falling short of its promise to help families become self-sufficient and to protect families with children who are unable to work, often because of health problems.

Employment among single mothers increased substantially during the early years of welfare reform, but many of those early gains have been lost.

The data suggest that a strong labor market is central to the success of a work-based assistance system.  In the early years of welfare reform, employment rates increased significantly among single mothers, including those with the lowest levels of education.  However, as the economy has weakened, a substantial portion of the early gains have been lost.

Since 2000, employment among never-married mothers with a high school education or less has been about the same as for single women without children with the same level of education.

In 1993, the year in which the first states were granted waivers to reform their cash assistance programs, 53 percent of never-married single mothers with a high school diploma or less had any employment during the year.  The comparable employment percentage for single women without kids was 76 percent — a gap of 23 percentage points.  By 2000, the employment gap between the two groups of women had entirely closed and both groups have seen their employment rates decline steadily since then.

This suggests that the economy, rather than policy, is now the main driver of employment among single mothers.  It also suggests that the employment strategies that worked to get single mothers employed in the past are unlikely to be sufficient in this greatly changed environment where fewer jobs are available and single mothers are competing for the available jobs with many other unemployed individuals, including many with more education and better qualifications.

It is also important to note factors other than welfare reform accounted for the largest share of the increase in employment among single mothers in the 1990s.  A highly regarded study by University of Chicago economist Jeffrey Grogger found that welfare reform accounted for just 13 percent of the total rise in employment among single mothers in the 1990s.  The Earned Income Tax Credit (which policymakers expanded in 1990 and 1993) and the strong economy were much bigger factors, accounting for 34 percent and 21 percent of the increase, respectively.

TANF caseloads, unlike AFDC caseloads, haven’t responded to changes in the number of jobless single mothers.

In most years, the AFDC caseload rose and fell to reflect changes in the number of jobless single mothers.  Beginning in 2002, however, the two trends diverged:  the number of jobless single mothers started rising, whiles the number of families receiving TANF kept falling.  While TANF caseloads have increased modestly more recently, the gap between the number of jobless single mothers and the number of families receiving assistance remains very wide.

TANF does far less to help families escape deep poverty than AFDC did.

TANF benefits are too low to bring many families out of poverty, but they can help reduce the depth of poverty.  Unfortunately, TANF has proven far less effective at lifting families out of deep poverty — that is, incomes below half the poverty line — than AFDC, mostly because fewer families receive TANF benefits than received AFDC benefits.  (The erosion in the value of TANF benefits has also contributed.)

Looking Ahead

TANF reform is long overdue:  although the program was due for reauthorization in 2010, Congress has enacted a series of short-term extensions since then (the current one expires September 30).  It will likely enact yet another short-term extension, but it may enact a longer-term reauthorization in the coming year.

Thus, policymakers have an opportunity to enhance TANF’s effectiveness as both a safety net and a work program.  Congress could help to achieve these goals by making changes that include:

  • Increasing the focus on employment by giving states the option to be held accountable for employment outcomes.  The TANF Work Participation Rate is a failed measure of state performance.  States that perform well under the measure often do so because they are not providing assistance to families with the greatest needs.  States shouldn’t be rewarded for not meeting either the basic needs or the employment assistance needs of these families.  Instead, we should let states build on what they have learned about what works best to help recipients find and maintain employment — and hold them accountable for the employment outcomes they achieve. 
  • Transforming the Contingency Fund into a Subsidized Employment Fund to provide employment to families during economic downturns.  Congress recognized that states would need funds to address additional needs during hard economic times.  However, the TANF Contingency Fund that it created for this purpose has not worked as intended.  With high unemployment rates expected to continue for some time, now is the time to redesign the Contingency Fund.

    A redesign should ensure that states with the greatest need can access the Fund and that they use the monies only for activities that directly address economic hardship caused by a weak economy, such as subsidized employment.  States have demonstrated that it is possible to provide subsidized jobs to large numbers of unemployed individuals.  When they received extra funds during the recession, states placed about 260,000 unemployed low-income parents and young adults in subsidized jobs.
  • Addressing the disincentives that states have to provide a safety net for families.  TANF’s safety net role has weakened significantly.  Congress could take several steps to encourage states to serve more families in need: (1) mandate that states spend a minimum share of TANF funds on basic assistance or subsidized employment; (2) consider the extent to which a state provides a safety net to families when considering penalty relief for states that do not meet the TANF work rate; and (3) eliminate the caseload reduction credit, which encourages states to keep the number of families they serve low.    
  • Ensuring that state and federal TANF funds are targeted to promoting and supporting work and providing a safety net to families.  In a constrained fiscal environment, it is important that policymakers target limited resources for these key purposes.  As caseloads have fallen, states have not reinvested these savings in work-related activities and supports.  They could redirect funds to TANF’s core purposes by mandating a minimum share of funding for specified areas, such as work activities and basic assistance, and prohibiting spending that does not further one of TANF’s goals. 

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