April 23, 1999

Potential Funding Sources
For Public Job Creation Initiatives

by Clifford M. Johnson

Public job creation programs are relatively expensive. Even for half-time, minimum-wage positions, the cost of wages and payroll taxes for each participant exceeds $6,000 per year. The costs of job development, case management, and support services can easily add as much as $2,500 or $3,000 per participant to that total. In this context, it is hardly surprising that one of the greatest impediments to the development of new public job creation initiatives is uncertainty about the availability of funding to support such efforts.

Since the demise of the CETA Public Service Employment program in 1981, there has been no federal funding specifically provided to create wage-paying, publicly-funded jobs for disadvantaged adults. Since 1996, however, states and communities have had new opportunities to use federal welfare funds for public job creation and wage subsidy programs targeted at low-income families who meet state eligibility requirements. In addition, a broad range of federal grant programs focused on economic or community development, housing, crime prevention, environmental protection, and other goals may be tapped to cover at least some of the costs incurred in public job creation efforts.

This overview of potential funding sources briefly describes the rules governing two major federal programs — the Temporary Assistance to Needy Families (TANF) program and the Welfare-to-Work (WtW) program — that currently provide a financing base for public job creation initiatives serving hard-to-employ welfare recipients and non-custodial parents. A list of other possible funding sources is included as a guide for those seeking to establish job creation programs for non-welfare populations and for those who are unable to gain access to TANF and WtW funds.(1)


I. TANF Funds

The 1996 federal welfare law (formally known as the Personal Responsibility and Work Opportunity Reconciliation Act) dramatically changed federally-funded welfare programs and their implementation at state and local levels. The Aid to Families with Dependent Children (AFDC) program was repealed and replaced by TANF block grants to states which give them vast new discretion in how to spend funds on behalf of needy families. As one example of that decision-making authority, states now have the option of using federal TANF funds (as well as state "maintenance of effort" funds which they must spend as a condition of receiving federal TANF funds) to create wage-paying, publicly-funded jobs for individuals who meet the state's TANF eligibility requirements.

The opportunity to use TANF funds for public job creation represents a major shift. Under AFDC, the federal matching funds that were provided for cash assistance to poor families could be used to subsidize wages only through a cumbersome "grant diversion" process. Separate funding for employment-related activities targeted to AFDC recipients was allocated to states under the JOBS program, but its regulations explicitly prohibited the use of JOBS funds for any form of public service employment. Both the AFDC grant diversion rules and the JOBS regulations have now been eliminated, opening the door to widespread use of federal welfare funds by states and communities for public job creation initiatives.

Current initiatives that rely upon TANF funds to pay some or all of the costs associated with publicly-funded jobs typically do so in one of two ways:

While direct allocation of TANF funds tends to be simpler and easier to administer, states and communities are finding ways to implement both approaches effectively.

Until recently, the principal shortcoming of using TANF funds to create publicly-funded jobs had been that such wage subsidies were considered to be "assistance" under TANF, meaning that months in which individuals work in these jobs had to be counted against their 60-month lifetime limit on TANF assistance. This policy was reversed in final TANF regulations issued by the U.S. Department of Health and Human Services (HHS) in April 1999. The new regulations state that subsidized employment does not constitute assistance and will not count against the federal time limit. This change in federal policy does not prevent states from counting months in subsidized jobs against their own state time limits if they choose to do so. However, state rules can be modified to conform with the new federal regulations.(2)

TANF funds can be used to serve non-custodial parents if the state modifies its TANF eligibility rules to include such parents within its definition of eligible families. Beyond this group, however, TANF funds cannot be used to serve a broader non-welfare population.


II. Welfare-to-Work (WtW) Funds

New federal welfare-to-work grants available to states and local communities beginning last year provide another potential source of funding for public job creation programs designed to move longer-term welfare recipients into unsubsidized employment. States receive the bulk of WtW funds and are required to distribute them to local private industry councils (PICs) on a formula basis. In addition, PICs, local governments, and nonprofit agencies are eligible to apply for competitive grants that are awarded directly by the U.S. Department of Labor. "Job creation through public or private sector employment wage subsidies" is specified as one of many allowable activities under the WtW program.(3)

For local communities interested in public job creation, WtW funds have the advantage of being controlled primarily by local officials (although local flexibility may be constrained to some extent by policies set by the state). In large cities, mayors have a great deal of influence over local PIC use of WtW funds. Business and community leaders who serve on PICs, as well as PIC directors and their staffs, also are important decision makers at the local level. While not required to do so, many PICs have solicited welfare-to-work proposals from community agencies and have used a competitive process to award grants or contracts to service providers.

The disadvantages of using WtW funds can be substantial. Many communities have struggled to comply with the WtW program's very narrow criteria for individual eligibility. At least 70 percent of funds under both formula and competitive grants must be used to serve a highly disadvantaged group of TANF recipients or non-custodial parents of children in TANF households. This target group must have either received assistance under TANF for at least 30 months or be within 12 months of a time limit on such assistance, and they must face at least two of the three following barriers to employment:

(1) lacks a high school diploma or GED and has low reading or math skills;

(2) requires substance abuse treatment for employment; and

(3) has a poor work history.

The remaining 30 percent of WtW funds can be used to assist other TANF recipients or non-custodial parents who have characteristics associated with long-term welfare receipt. Individuals or families not receiving TANF assistance (except for non-custodial parents and former recipients who have reached state or federal time limits on assistance) cannot be served under the federal WtW program.

As in the case of federal TANF funds, months of employment in a publicly-funded job subsidized through the federal WtW program do not count against an individual's 60-month federal time limit on assistance under TANF.


III. Other Potential Funding Sources

Empowerment Zones/Enterprise Communities — The U.S. Department of Housing and Urban Development (HUD) provides approximately $100 - $130 million over a period of up to ten years to high-poverty areas designated as Empowerment Zones and roughly $3 million to a second tier of Enterprise Communities. In both instances, designated communities have broad discretion to use funds to support a wide range of community and economic development services and activities. Many EZs and ECs are still engaged in planning activities and have not yet decided how to allocate the federal funds that have been awarded to them.

Community Development Block Grants — As their name implies, these grants can also be used for a broad range of community development activities, including neighborhood revitalization, economic development, and improved community facilities and services. Because HUD has provided these block grants to states and certain larger cities and counties for many years, however, considerable effort may be required to refocus CDBG funds on new public job creation initiatives.

YouthBuild — This HUD-administered program provides funding for comprehensive employment, education, and leadership development projects that engage economically disadvantaged young adults in the construction and rehabilitation of affordable housing in low-income communities. The YouthBuild model is complex and demanding, including not only wages for participants while employed at work sites but also education, training, mentoring, and extensive support services.

AmeriCorps — Similar to HUD's YouthBuild program, AmeriCorps funding provided by the federal Corporation for National Service can provide a base of financial support to youth corps and other programs that pay wages or stipends to young people in service-related projects.

Other federally-funded services — To the extent that public job creation programs are designed to engage participants in useful work, a wide range of other federal grant programs can be tapped to finance at least portions of their costs. For example, Medicaid and Children's Health Insurance Program (CHIP) funds could be used by states to pay wages to participants involved in health insurance outreach and enrollment projects. Wage costs for participants who are employed as aides in child care and preschool programs could be supported by utilizing Child Care and Development Block Grants, Title XX Social Service Block Grants, or Head Start funds. A focus on federally-funded services could lead in many other directions as well, ranging from brownsfield cleanup and environmental protection efforts to home health care and other essential social services.

The limitations of this approach are quite substantial, however, falling into two principal areas. First, it is unlikely that several key elements of a public job creation program (including such client-focused activities as education and training, job development and placement, and case management) could be financed in this manner. Second, efforts to tap federal funding sources already available to provide services in low-income communities can heighten concerns about potential displacement of other workers engaged in similar work.

End Notes:

1. This list of potential funding sources draws heavily from the compilation prepared by the Public Policy Department of the American Federation of State, County, and Municipal Employees (AFSCME) and published in AFSCME's July 1998 report entitled Thinking Creatively About Welfare-to-Work Job Creation.

2. The new federal policy excluding wage subsidies from the definition of "assistance" under TANF may raise other concerns at the state level about work participation and child support requirements. A more complete analysis of these issues is available from the Center on Budget and Policy Priorities.

3. Further information on the legislation and regulations governing the new federal welfare-to-work grants can be found on the Department of Labor's welfare-to-work web site (http://wtw.doleta.gov).