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Should TANF Block Grant Funds Be Rescinded?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 The rescinded amount would represent a portion — roughly one-third — of the TANF funds states will have left unspent as of that date.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 They may contend that it is unlikely the rescinded funds would otherwise be spent in fiscal year 2000 (in part because states still would have access to a portion of their unspent TANF funds) and that all of the rescinded funds would be returned to the states in 2001.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assurance that the TANF funds slated to be returned to the states in 2001 would actually materialize rather than being rescinded next year to help make the numbers fit in the FY 2001 appropriation bills.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,".)


  • 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.

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.