Chart Book: TANF at 18
August 22, 2014
Eighteen years ago, the Temporary Assistance for Needy Families (TANF) block grant was created as a part of the 1996 welfare reform law to replace the Aid to Families with Dependent Children (AFDC) program. Welfare reform provided states with a fixed block grant in exchange for greater flexibility in how they could use the funds. In addition, for the first time, cash benefits were time limited and states were held accountable for engaging most cash assistance recipients in work or work-related activities.
The TANF block grant fundamentally altered both the structure and the allowable uses of federal and state dollars previously spent on AFDC and related programs. Under TANF, the federal government gives states a fixed block grant totaling $16.5 billion each year and requires them to maintain a certain level of state spending (totaling $10 billion to $11 billion a year), based on a state's level of spending for AFDC and related programs prior to TANF's creation. (This state funding requirement is known as the "maintenance of effort" requirement, or MOE.) Because the block grant has never been increased or adjusted for inflation, states received 32 percent less in real (inflation-adjusted) dollars in 2014 than they did in 1997. 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. That "maintenance of effort" requirement isn't adjusted for inflation, either.
States can use their federal and state TANF dollars and state MOE funds to support a broad range of activities related to promoting the four purposes of TANF specified in federal law: assisting needy families so children can be cared for in their own homes or the homes of relatives; reducing the dependency of needy parents by promoting job preparation, work and marriage; preventing out-of-wedlock pregnancies; and encouraging the formation and maintenance of two-parent families.
We have observed over the last 18 years how TANF performed in both good and bad times. The labor market was extraordinarily strong in TANF's early years, while in more recent years it has been one of the worst on record. When assessing TANF's accomplishments, it is important to consider how it has performed over the full period. Proponents use data from TANF's early years (through 2000) to tout TANF as a resounding success, but that view ignores what has happened during the last 14 years.
To be sure, TANF's early years were marked by unprecedented declines in the number of families receiving cash assistance -- and unprecedented increases in the share of single mothers working, especially those with a high school education or less. But since then, TANF's record has been more dismal. TANF provides basic assistance to few families in need and responded only modestly to the significant increase in unemployment nationally during and after the Great Recession -- and not at all in a number of states, including some that were hard hit.
Taking into account the full 18 years of TANF's history, this chart book illustrates the following facts:
- Over time, TANF has provided basic cash assistance to fewer and fewer needy families, even when need has increased.
- During the recession and slow recovery, TANF served few families in need.
- The amount of cash assistance provided to families has eroded in almost every state, leaving families without sufficient funds to meet their most basic needs.
- TANF plays much less of a role in reducing poverty than AFDC did -- and the provision of less cash assistance has contributed to an increase in deep or extreme poverty.
- Although a key focus of welfare reform was on increasing employment among cash assistance recipients, states spend little of their TANF funds to help improve recipients' employability.
- Employment among single mothers increased in the 1990's, but welfare reform was only one of several contributing factors -- and most of the early gains have been lost.
Over time, TANF has provided basic cash assistance to fewer and fewer needy families, even when need has increased.
Over the last 18 years, the national TANF average monthly caseload has fallen by almost two-thirds -- from 4.7 million families in 1996 to 1.7 million families in 2013 -- even as poverty and deep poverty have worsened. The number of families with children in poverty hit a low of 5.2 million in 2000, but has since increased to more than 7 million. Similarly, the number of families with children in deep poverty (with incomes below half of the poverty line) hit a low of about 2 million in 2000, but is now above 3 million.
The official poverty rate among families declined in the early years of welfare reform, when the economy was booming and unemployment was extremely low, but it started increasing in 2000 and now exceeds its 1996 level. The official poverty rate among single mothers reached its lowest point since the start of TANF -- 34.8 percent -- somewhat later, in 2002. In 2012, it stood at 43 percent, just a half a percentage point below where it was when TANF was created in 1996.
These opposing trends -- TANF caseloads going down while poverty is going up -- mean that TANF reaches a much smaller share of poor families than AFDC did. When TANF was enacted, nationally, 68 families received assistance for every 100 families in poverty; that number has since fallen to just 25 families receiving assistance for every 100 families in poverty. And, in a number of states, TANF provides cash assistance to a much smaller share of poor families than the national data suggests. In eight states, fewer than 10 families receive cash assistance for every 100 families in poverty.
During the recession and slow recovery, TANF served few families in need.
Nationally, TANF responded only modestly to the severe recession that began in December 2007. State TANF caseloads varied widely in their responsiveness during the recession, growing substantially in some states but changing little in many others.
The variation among states widened during the recovery that began in June 2009, as some states made significant policy or programmatic changes that led to substantial caseload declines. By December 2013, over half of all states had lower caseloads than at the start of the recession in December 2007, even though the unemployment rate in December 2013, at 6.7 percent, was above the December 2007 level of 5.0 percent.
The growing gap between the number of single parents who are not working and the number of families receiving TANF also shows TANF's limited reach to families in need. In 1995, the number of families receiving cash assistance in an average month exceeded the number of single mothers who were not employed over the course of the year. By 2013, the number of unemployed single mothers was more than 2.4 times the number of families receiving TANF in an average month. This gap was substantial even before the recession, but it grew substantially during the years of, and just after, the recession.
The amount of cash assistance provided to families has eroded in almost every state, leaving families without sufficient funds to meet their most basic needs.
Not only are fewer needy families receiving TANF cash benefits, but benefit levels for those who are on TANF are extremely low. In the median state in 2013, a family of three received $428 per month; in 14 states, such a family received less than $300. TANF benefits are below 50 percent of the federal poverty line in all 50 states and below 20 percent of the poverty line in 16 states.
TANF benefits were not high in most states at the start of welfare reform, but most states have allowed their benefits to erode even further. In all but two states, the real (inflation-adjusted) value of TANF cash benefits has declined since welfare reform's enactment and in the vast majority of states, TANF cash benefits today are worth at least 20 percent less today than in 1996.
The impact on families is even greater than this data suggests, because as TANF benefits have declined, housing prices in many places have increased. Consequently, TANF benefits cover only a fraction of a family's housing costs, and housing is only one of the basic needs that a family must meet (although it is one of the largest). The monthly TANF benefit level for a family of three is now less than the estimated cost of a modest two-bedroom apartment in all states (based on HUD Fair Market Rents, or FMRs), and less than half of the FMR in 28 states.
TANF plays much less of a role in reducing poverty than AFDC did -- and the provision of less cash assistance has contributed to an increase in deep or extreme poverty.
The share of children living in deep poverty (defined as living in families with incomes below half the poverty line) has increased since welfare reform was implemented, and research suggests that the loss of TANF benefits contributed to that growth. TANF benefits are too low to lift 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 than AFDC, mostly because fewer families receive TANF benefits than received AFDC benefits. (The erosion in the value of TANF benefits has also contributed.) While AFDC lifted more than 2 million children out of deep poverty in 1995, TANF lifted only 629,000 children out of deep poverty in 2010.
Researchers Luke Shaefer and Kathryn Edin have found that the number of households with children with monthly cash incomes equivalent to less than $2 per person per day -- a standard of poverty more associated with third-world countries -- has more than doubled since 1996. Counting the value of tax credits and non-cash benefits -- housing assistance, tax credits, and SNAP (formerly food stamps) -- lowers these numbers considerably, but the growth in extremely poor households with children remains troubling: a 50 percent increase, to 613,000 families in 2011. This measure of extreme poverty rose "particularly among those most impacted by the 1996 welfare reform," Shaefer and Edin found.
Although a key focus of welfare reform was on increasing employment among cash assistance recipients, states spend little of their TANF funds to help improve recipients' employability.
One of the key reasons for block granting the TANF program was to give states greater flexibility to help cash assistance recipients find and maintain work so they would no longer need assistance. The idea was that if states had more flexibility they could use the funds they previously used to provide cash grants to help recipients find jobs and to cover the costs of work supports like child care and transportation. While states modestly increased spending in these areas in the early years of TANF, they have not sustained the increases.
Overall, states spent only 8 percent of their state and federal TANF funds on work activities in 2013, with 14 states spending less than 5 percent. States spent 16 percent of these funds on child care, with 13 states spending less than 5 percent. States spent about a third of their TANF funds on other services such as child welfare, early education, afterschool programs, and pregnancy prevention programs. States are required to document how they spend their state and federal TANF funds, but there are no performance standards to measure whether the investments states have made have resulted in improved outcomes for children or families.
Employment among single mothers increased in the 1990's, but welfare reform was only one of several contributing factors -- and most of the early gains have since been lost.
The employment situation for never-married mothers with a high school or less education -- the group of mothers most affected by welfare reform -- has changed dramatically over the last several decades. In the early 1990's, when states first made major changes to their cash welfare programs, only about half of these mothers worked. Importantly, there was a very large employment gap between the share of these never-married mothers and single women without children with similar levels of education, suggesting that there was substantial room for these never-married mothers to increase their participation in the labor force.
By 2000, the employment gap between these two groups of women closed, and it has remained so. But in the years since, the employment rate for both groups has fallen considerably. The employment rate for never-married mothers is now about the same as when welfare reform was enacted 18 years ago. This suggests that the economy and low education levels are now the causes of limited employment among never-married mothers -- not the availability of public benefits or anything particular to never-married mothers.
The increase in labor force participation among never-married and other single mothers that occurred in the 1990's is often cited as a major accomplishment of welfare reform. Rigorous research suggests, however, that a strong labor market and the expansion of the Earned Income Tax Credit played an even greater role. 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) accounted for 34 percent and 21 percent of the increase, respectively. Grogger also finds that welfare benefit levels accounted for an additional 7 percent of the increase, but this variable captures state-level variation in benefit levels that is unrelated to welfare reform.
Looking back over TANF's history, it is impossible to reconcile the facts with claims that welfare reform was such an extraordinary success that we should use it as a model for reforming other safety net programs. In TANF's 18-year history, never-married mothers with a high school education or less made substantial gains in employment in only the first four years -- largely due to the roaring economy of the late 1990s -- and those gains have almost entirely eroded in the subsequent 14. It is wishful thinking to assume that we could see the same employment gains we saw in TANF's early years in today's sluggish labor market.
Similarly, the record shows that we cannot rely solely upon states to increase opportunity for the poor. When states' cash assistance caseloads fell substantially in the late 1990s, states could have used some of the freed-up funds to increase recipients' employability. Instead, they made other choices, including using TANF funds to fill budget holes and to substitute for state funds they had previously used to provide assistance to poor families. If they wanted to increase opportunity now, they could do so by using more of their TANF funds to help TANF recipients and other low-income parents gain the education and skills they need to qualify for jobs that will help them escape poverty.
Finally, in light of the growing body of research on the importance of income -- and the devastating impact of poverty -- on children's early development, TANF's far weakened role for families with the most significant employment barriers should cause concern for those who want to provide a better future for poor children. The safety net (other than TANF) plays an extremely important role in reducing poverty and deep poverty in this country -- a role that should be maintained. The evidence from TANF suggests that applying TANF-like reforms to other safety net programs would likely cause more families to join the ranks of the deeply poor and cause some who are already deeply poor to become even poorer.
TANF reform is long overdue. We should fix its problems before embarking on reforms that will repeat its failures.