Revised September 27, 1999
Should TANF Block Grant Funds Be Rescinded?
by Ed Lazere and Robert Greenstein
A proposal has been made to rescind $3 billion in TANF block grant funds that were allocated to states but unspent as of September 30, 1999, and to make those funds available to states in fiscal year 2001. The rescinded amount would represent a portion roughly one-third of the TANF funds states will have left unspent as of that date. This proposal is part of an effort to "make the numbers fit" for the FY 2000 Labor-HHS-Education bill.
Those who have crafted this proposal are likely to argue it will have no adverse effect on states. They may contend that it is unlikely the rescinded funds would otherwise be spent in fiscal year 2000 (in part because states still would have access to a portion of their unspent TANF funds) and that all of the rescinded funds would be returned to the states in 2001. But, while that may be the intent of this language, the proposal would very likely have a damaging effect on state efforts to move families to self-sufficiency.
The proposal would be likely to have a chilling effect on state officials who are responsible for TANF; these officials would have no assurance that the TANF funds slated to be returned to the states in 2001 would actually materialize rather than being rescinded next year to help make the numbers fit in the FY 2001 appropriation bills. States no longer would be able to trust the federal promise made when the welfare law was enacted that TANF funding would hold steady for seven years as specified in the welfare law and be protected from reductions and rescissions throughout this period. Once the precedent of rescinding TANF funds is established, it increases the likelihood of further rescissions in year ahead. As a result, many states would be less willing to embark on innovative uses of TANF funds, which are needed, in particular, to aid working poor families with children and families with serious barriers to employment. State officials are likely to fear that if they increase their TANF expenditures and invest resources in promising new endeavors to assist these families, the federal government may subsequently withdraw some of the resources and leave the states "holding the bag." (The proposed rescission also raises equity concerns; the formula for determining what share of the rescission each state would bear would be inequitable to a number of states; see the related Center analysis entitled "Allocation of the $3 Billion TANF Rescission Among States Would Treat Some States Inequitably,".)
- Many states are likely to view this proposal as a cut, not as a deferral of funds until 2001. If the proposal passes, it will signal to these states that TANF funds may be a continuing target for Congressional reductions in coming years whenever appropriations are tight. Moreover, the language to restore these funds a year from now does not provide a solid guarantee that states actually will see these funds; states are likely to fear, with some justification, that the appropriations committees will consider extending the deferral of these funds again next year when the committees confront the caps for FY 2001.
- The ultimate success of the TANF block grant depends on the provision of consistent resources so states can launch new initiatives with confidence that resources to sustain these initiatives will be forthcoming. If TANF funding does not remain stable and predictable, states are likely to have less incentive and less willingness to innovate and pursue promising new approaches.
- If these funds are not subsequently restored in 2001, the rescission will punish those states that have been prudent and set aside some of their TANF funds in "rainy day" reserves that can be tapped when the economy turns down. In the deliberations on the welfare bill in 1995 and 1996, the bill's supporters defended its elimination of the public assistance entitlement under which federal welfare funding for states automatically increased when recession set in and poverty rose by noting that states could set aside unspent TANF funds when the economy was strong and draw down those funds when the economy weakened. Under the proposed rescission, however, states that set aside a portion of their TANF block grant funds for later use when the economy turned down could be penalized for their fiscal prudence. (Note: Earlier this year, in a letter to Senate Majority Leader Trent Lott, Reps. Bill Archer, Clay Shaw, and Nancy Johnson recommended that states "save money for the inevitable day when state economies or the national economy go into decline.")
PROBLEMATIC ASPECTS OF THE PROPOSAL
- Some who have advocated scaling back TANF funding have argued that states have vastly more TANF money than they can use. In fact, states spent 88 percent of their annual federal and state welfare reform funds in 1998, and spending appears to be rising in 1999.1
- A share of the unspent TANF funds have been set aside by states in "rainy day" TANF reserves that states can draw upon when the economy turns down. During downturns, poverty rises, and states will need increased amounts of funds. Setting aside some TANF funds for this purpose is a prudent action for which states should be applauded, not penalized.
- Although welfare caseloads have fallen substantially, many of the families that remain on cash assistance rolls are families that face the largest barriers to employment and consequently will require more intensive and expensive employment-related services if they are to move to self-sufficiency. Moreover, the need for such assistance is growing; increasing numbers of families will be reaching state time limits over the next few years, especially after October 2001, when the federal five-year lifetime limit kicks in. This heightens the need to move more families to self-sufficiency before then.
- The absence until a few months ago of final federal regulations regarding the allowable uses of TANF funds created uncertainty among states and caused some states to refrain from implementing certain innovative welfare-reform strategies. The final TANF regulations, issued in April 1999, resolve this problem; the regulations give states broad flexibility and much greater certainty about allowable uses of these funds. The final regulations make clear that states can select from among a wide range of policies to support working poor families and families still on cash assistance that face serious barriers to employment. The issuance of these regulations is expected to lead to increases in state TANF expenditures. Rescinding a portion of TANF funds, however, is likely to deter many states from using this flexibility to help these families and children because states would lack certainty about future levels of federal TANF resources.
- The appropriate time to consider whether to alter the TANF funding level is when the TANF block grant is reauthorized in 2002, not halfway through the authorization period the welfare law established, and at a time when final TANF regulations have just been issued and fewer than 24 months remain to help more families move to self-sufficiency before the federal five-year time limit begins to be felt.
1 In fiscal year 1998, annual TANF and state MOE funds totaled $27.6 billion. Expenditures and transfers of TANF and MOE funds totaled $24.2 billion, or 88 percent of annual funding.
As mentioned above, this proposal is likely to limit state initiatives to help needy families with children. A host of new TANF-funded efforts are expected in the coming year, but a number of these initiatives may not be mounted if states lack confidence they can count on TANF funding being available on a predictable, sustained basis.
- In April 1999, the U.S. Department of Health and Human Services released final TANF regulations. The regulations substantially expand state flexibility. In particular, the regulations remove a threat of federal penalties on states (which had been raised by the proposed regulations) for using various innovative approaches to assist poor families. The final regulations also make clear that states can use TANF funds to provide substantial assistance to working poor families without subjecting those families to time limits and other restrictions inappropriate for families that are working rather than relying on welfare. It would be ironic for the federal government to raise doubts about the reliability of this funding just as states are gearing up to use this new flexibility.
- A large body of research on families that have left welfare, and on low-income families in general, has confirmed that a substantial need for assistance remains despite the large declines in welfare caseloads. Numerous state-sponsored studies have found that women leaving welfare for work typically have very low incomes and often receive little government support, even for basic services such as child care. The studies also show that many parents who remain on TANF face multiple barriers to work and need intensive supports to work their way off welfare and stay off. Furthermore, Census data reveal that a substantial number of very poor single-parent families have lost ground economically in the past few years, in large part due to unintended side-effects of the sweeping changes in the welfare system; this is a problem many states are now considering how best to address. Despite the robust economy, more than 11 million children remain poor even after food stamps, school lunches and housing benefits are counted as income. In addition, the basic Census indicator that measures the depth and severity of child poverty has failed to improve since 1995 despite the strong economic growth.
Policymakers in a number of states are considering mounting new initiatives with their TANF funds, including more supports for low-income working families with children and more intensive employment-related assistance for poor families that face multiple barriers to stable employment. In a number of states, the proposed rescission of TANF funds could make it less likely the state would proceed with these efforts.