March 11, 1999

The TANF Block Grant Should Not Be Cut

On March 4, 1999, the Senate Appropriations Committee passed an emergency supplemental appropriations bill that provides funding for hurricane relief and aid to Jordan. The bill includes a provision to use $350 million of FY 1999 TANF funds to partially offset the $1.2 billion cost of the emergency appropriation. States would not be permitted to obligate or spend these TANF funds until October 1, 2001.

Using TANF funds as an offset for emergency spending reverses the commitment Congress made to fully fund TANF at authorized levels for six years and sets the stage for further assaults on TANF resources in the future. While much attention has been focused recently on unspent TANF funds, in fact, states are spending the vast majority of welfare funds available. In many states, unspent funds reflect a conscious effort to save for a rainy day. In other states, unspent funds reflect unexpected circumstances that are unlikely to continue.

Although the bill would have no immediate fiscal impact on state TANF programs, using TANF funds as an offset sends a message that it is acceptable to cut TANF block grants, a perception that could lead to real cuts that would harm low-income families with children. If states anticipate additional cuts, they could be deterred from moving forward with new initiatives.


States are spending most of their available welfare funds

While attention is focusing on unspent TANF fund balances, states on average actually spent the vast bulk of their welfare funds in fiscal year 1998. In fact, states on average spent or transferred 88 percent of their available welfare funds — including both TANF funds and each state's required maintenance-of-effort spending — and left only 12 percent unspent.

Some have compared the unspent TANF amount to the full TANF block grant, ignoring state maintenance of effort funds. This is not an appropriate comparison. States are required to meet their maintenance of effort requirement every year but are allowed to leave TANF funds unspent in a given year and expend them in a subsequent year. As a result, a state's unspent funds almost always are TANF funds. For this reason, an appropriate analysis compares the unspent TANF amount to the combined amounts of TANF and MOE funding available. When this is done, seven- eighths of the available funds (88 percent) have been spent.

It is true that between fiscal year 1997 and fiscal year 1998, unspent TANF funds increased by a total of $3.4 billion. Some of these unspent funds, however, are "unliquidated obligations," funds that a state has committed to spend, such as through contracts with service providers, but has not yet expended.


States have chosen not to spend their entire TANF block grants

Welfare caseloads dropped dramatically during 1998, taking some states by surprise. States that had budgeted for larger caseloads ended up with unspent funds. Over time, states will be able to predict their welfare caseloads more accurately and be able to budget accordingly.

In addition, some states that have either put new programs in place or expanded access to programs such as child care assistance have not fully expended available funds because outreach efforts have not yet reached some eligible families. In these states, TANF expenditures are likely to increase even in the absence of new initiatives, as eligible families — particularly working poor families — learn of and take advantage of these new programs.

Also of note, states have the option under the welfare law to reserve some portion of their TANF block grant to serve as a "rainy day" fund in the event of a recession that increases caseloads. Under the Aid to Families with Dependent Children program, the federal government shared with states some of the increased costs during recessions. Under TANF, however, the federal government will provide virtually no additional funds to states in the event of a recession.

It is important to understand that even if a state has established a "rainy day" fund in its TANF program, the actual dollars remain in the federal treasury and look as if they have not been spent. Under federal cash management policies, TANF block grant funds are transferred to states only as reimbursement for actual expenditures on TANF programs. Because establishment of a "rainy day" fund does not entail an expenditure on benefits and services, such funds remain as unobligated TANF funds or unliquidated obligations until the state taps into the reserve fund.

Reserving some TANF funds to guard against recessionary pressures thus increases the unspent TANF balances of states, but it is a legitimate — and necessary — use of TANF funds. According to the American Public Human Services Association, at least half of the states have taken steps to create a rainy day fund. Others may be assuming, without specific state statutory or budgetary language, that their unexpended federal TANF dollars are their rainy day account. If Congress ignores this prospective purpose of the unspent funds, it will be preventing states from taking steps to protect against recessionary periods when federal matching funds will no longer be provided to states to help them serve the increased numbers of needy families.

If the TANF provision in the supplemental appropriations bill becomes law, and a recession occurs before FY 2002 — and states need the $350 million to address increased need during the recession — Congress would have to make cuts in other programs in order to free up the funds.


States are moving to a second phase of welfare reform in which remaining TANF funds will be important

There have been some uncertainties concerning allowable uses of TANF funds due to a lack of federal regulations on these issues. Many states are interested in using TANF funds to provide more services to harder-to-serve populations and low-income working families, but the absence of clear guidance from HHS has hindered the states. HHS plans to issue final regulations on the use of TANF funds in the near future; this is likely to lead to expanded state efforts in these areas.

Reducing federal TANF payments to states could conflict with these efforts and compromise the ability of states to provide the range of services and training that some of the hardest-to-serve families are likely to need to move successfully from welfare to work. It also could hamper states' efforts to assist low-income working parents in retaining their first jobs while acquiring new skills so they can move up the economic ladder into better-paying jobs that enable them to support their families more adequately.

Child Poverty Remains High

The need for TANF funds continues to be high, as 14 million children — one in every five — lives in a family with income below the poverty line. Declines in TANF caseloads have not been matched by a commensurate drop in need. Between 1994 and 1997, the number of poor declined 8.3 percent while welfare caseloads declined 23.7 percent and food stamp caseloads declined 18.1 percent.

The percentage of the poor receiving food stamps and cash assistance is declining. The state TANF funds provide the opportunity to help more poor children and families, especially working poor families trying to raise their children on low wages. Available TANF funds can be reinvested to help these low-income working families, particularly working-poor single-mother families, whose ranks appear to be growing.

For example, opportunities exist to: increase earned-income disregards for those working in low-wage jobs; provide child care assistance to more low-income working families; provide education and job readiness training to increase the employability of parents considered to be "hard-to-serve," including parents whose disabilities make it more difficult for them to work; provide on-the-job training and other skills development training that permit low-income working parents to secure higher-wage jobs; and help low-income non-custodial parents improve their job skills so they are better able to secure employment and make the child support payments they owe. Many states are just beginning to recognize the full extent of the flexibility they have been accorded and to move to use available funds to address such needs. As noted above, the issuance in the near future of federal regulations settling many unanswered state questions in these areas may be particularly significant.


Additional cuts could affect needy families

In recent years, Congress has replaced some federal programs with block grants with commitments to maintain their funding. A number of block grants, however, have subsequently faced the budget ax. By FY 2001, funding for the Social Services Block Grant will be 40 percent below its average level in the early 1990s.(1) If TANF funds are cut or deferred now, it is more likely that reductions in TANF block grants will be used to offset other spending increases in future years.

A cut in TANF sends states exactly the opposite signal from that which Congress intended when it passed the welfare reform law in 1996. Instead of encouraging states to be flexible and creative in their efforts to move families from welfare to work, cuts now will suggest to states that they should be cautious about spending remaining TANF dollars on such efforts because if Congress cuts once, it may well cut again.

End Note:

1. From 1991 to 1994, this block grant was funded at a level of $2.8 million per year. Funding is scheduled to decline to $1.7 million per year in 2001. This is a 40 percent reduction in nominal dollars and a 50 percent reduction in inflation-adjusted dollars between 1991 and 2001.