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Policy Brief: How States Use Funds Under the TANF Block Grant

UPDATED
February 19, 2019

States only spend a little more than half of their combined federal and state dollars under Temporary Assistance for Needy Families (TANF) on core areas — basic assistance for families with children, child care for low-income families, and work-related activities or supports (see Figure 1) — and a handful of states spend less than a quarter on these areas, our look at the latest data from fiscal year 2017 shows. Those figures point to fundamental flaws with the TANF block grant, which the President and Congress created under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, and which gives states great flexibility on using the funds. A look at how states spend the TANF funds provides compelling evidence on why basic safety net programs should not be block-granted. (See our full report for greater detail, as well as our fact sheets and spreadsheet with state-by-state information.[1])

States Spend Only About Half of TANF Funds in Core Areas

When TANF was created in 1996, a primary intent was to make a program that helped cash assistance recipients find and maintain work that would reduce their need for cash assistance. Yet nationally, states use just 52 percent of federal and state TANF funds for basic assistance, work-related activities, work supports/supportive services, and child care, the latest data from fiscal year 2017 show (see Figure 1). Some states spend much less (see Figure 2).

  • States spent a little less than one-quarter of their federal and state TANF funds on one core area: basic cash assistance to help very poor families care for their children and meet very basic needs such as shelter. When TANF began, basic assistance was the single biggest use of TANF funds in all states.

    There is significant variation across states; nine states spent less than 10 percent of their funds on basic cash assistance in 2017. Not surprisingly, the states that spend the smallest shares of their TANF funds on basic assistance generally have lower benefits and assist a smaller share of poor families than the typical state.

    Not only do states spend a much smaller share of their TANF funds on basic assistance than they used to, but the TANF block grant has lost more than a third of its value since its creation due to inflation. As a result, state spending on basic assistance has fallen by 67 percent since 1997, after adjusting for inflation.

 

Figure 1
States Spent Only About Half of Federal and State TANF Funds on Core Program Activities in 2017

 

  • States spend little to help families work, using only 14 percent of their TANF funds for work activities and supports. In 2017, states used only 11 percent of their TANF funds for work activities and another 3 percent on work supports or supportive services. A central tenet of TANF was that cash assistance should provide temporary support while a family engages in required activities to help it connect to or prepare for work. Yet most states spend little of their TANF funding on work-related activities. The share spent to help families work varies across states; ten states spent less than 5 percent of their funds on work activities and work supports/supportive services combined.
  • States use only 16 percent of their TANF funds to help low-income families afford child care. Another central tenet of the creation of TANF was that states could spend more of the funds on child care subsidies — which are essential to enabling low-income parents to work — than on direct financial assistance. States’ TANF spending on child care rose dramatically in TANF’s early years but has been flat or declining for over a decade and has fallen by 44 percent since 2000, after adjusting for inflation. At the same time, need for child care subsidies remains high. Low-income parents who can’t get a subsidy may not be able to take or keep a job or may have to leave children alone or in an unsafe situation.

    The share of federal and state TANF funds spent on child care varies tremendously. Nine states spent more than 30 percent of their TANF funds in this area, while 14 states spent less than 5 percent.

Figure 2
Many States Spend Only About Half of TANF Funds on Core Services

 

States Spend Nearly Half of TANF Funds Outside Core Areas

States diverted a significant portion of the funds from supporting needy families and used them to fill state budget holes.Instead of investing in connecting families to work, supporting them in work, and providing temporary cash assistance, states use a large share of TANF funds — more than three-quarters in some states — in other areas.

Some states have used TANF funds to expand programs, such as Earned Income Tax Credits (EITCs) or pre-kindergarten, or to cover the growing costs of existing services, such as child welfare. While these are worthy and important investments, states should use funding other than federal and state TANF funds for them, particularly when the average state spends only around half of its TANF funds to provide direct financial assistance, connect TANF families to work, or provide child care help to low-income working families. Also, some states have used TANF funds to replace existing state funds, thereby freeing those state funds for purposes unrelated to providing a safety net or work opportunities for low-income families.

Key areas of spending outside of core areas include:

  • Child welfare. Some 39 states used TANF funds for child welfare services in 2017. This represents 7 percent of total federal and state TANF spending and 9 percent of spending for those 39 states. Ten states spent more than 20 percent of their TANF funds in this area.
  • Pre-K/Head Start. Some 27 states used TANF funds for pre-K/Head Start in 2017. This represents 8 percent of total federal and state TANF spending and 15 percent of spending for those 26 states. Six states spent more than 20 percent of their TANF funds in this area.
  • Working-family tax credits. Refundable tax credits for low-income working families are an important work support and a permissible use of federal and state TANF funds. In 2017, 21 states used these funds for refundable tax credits, most commonly a state EITC. This represented 9 percent of total federal and state TANF spending and 19 percent of spending for those 21 states. Seven of these states spent more than 20 percent of their TANF funds in this area.
  • Other areas. The rest of federal TANF spending goes to areas including program management (11 percent of TANF spending), emergency assistance (3 percent), transfers to the Social Services Block Grant (4 percent), preventing out-of-wedlock pregnancies and supporting marriage (2 percent), services for youth and children (2 percent), and services “Authorized Under Prior Law,” meaning they are not within the four TANF purposes but were in the state’s Aid to Families with Dependent Children (AFDC) Emergency Assistance plan when TANF replaced AFDC (2 percent).

TANF Experience Highlights Risk of Block Grants

The track record of state spending under TANF offers broader lessons about the risks of block-granting core programs for low-income families and giving states greater flexibility on how to spend funds previously used to meet basic needs.

TANF proponents said that states would use their flexibility to shift spending from cash assistance to improved work programs and work supports. But that is not what happened. Instead, states diverted a significant portion of the funds from supporting needy families and used them to fill state budget holes. The bulk of funds withdrawn from the cash assistance to low-income families have not gone to programs that connect families to work or to support low-income working families.

In addition, as noted, the federal TANF block grant is not adjusted for inflation and thus has eroded badly over time, losing one-third of its value since 1997. These two factors — the funds’ diminished value and broadened dispersal — have left states with fewer resources to serve needy families. The lessons of TANF spending patterns should provide a cautionary tale for proposals to restructure other means-tested programs along similar lines.

End Notes

[1] Liz Schott, Ife Floyd, and Ashley Burnside, “How States Use Funds Under the TANF Block Grant,” Center on Budget and Policy Priorities, updated February 19, 2019, http://www.cbpp.org/research/family-income-support/how-states-use-funds-under-the-tanf-block-grant.