Meeting the Welfare Reform Challenge

Kenneth Finegold
March 11, 2002

The sweeping overhaul of this country's system of supports for low-income families in 1996 gave state and local welfare offices greater flexibility to form new relationships with other government agencies, non-profits, for-profits, community groups and faith-based organizations. At the same time, a steep decline in the numbers of people receiving cash assistance left some states with quite a bit more money in their welfare budgets than was needed to fund welfare checks to families.

Some state and local governments have been taking this opportunity to experiment with new supports and services for families receiving assistance. Their efforts may be worth examining as Congress debates the terms for reauthorizing the 1996 legislation.

Researchers for the Urban Institute's Assessing the New Federalism project have identified several promising approaches. Many of these reflect policymakers' growing understanding of the diverse needs and circumstances of low-income families. A strict work-first approach may not be sufficient to move some welfare recipients into the workforce, or out of poverty. The experience of the past six years of welfare reform demonstrates that even in a strong economy, some parents will continue to require cash assistance, and others will move on and off the rolls. These "stayers" and "cyclers" are at risk of hitting the 5-year lifetime limit on benefits and becoming ineligible for federal cash assistance.

Welfare to Work
States stand to lose part of their federal grant—known as TANF, for Temporary Assistance to Needy Families—if too few of their cash assistance recipients are working. Individual recipients are also required to work or else lose benefits. Some welfare agencies have developed innovative services that help welfare recipients make the move to work.

  • Boston's workforce investment agency has formed partnerships with nearly two dozen firms; the companies commit to hire all students who complete a program consisting of an occupation-specific curriculum and a workplace internship.
  • Philadelphia's Transitional Work Corporation provides closely supervised paid work experience for TANF recipients who have not been able to move into the labor market on their own.
  • Washington state funds community-service jobs with local nonprofits.

Help for New Workers
Where government services end as soon as a TANF recipient becomes employed, she may face a bleak future of low-wage work at a series of dead-end jobs, punctuated by periodic returns to cash assistance. To avoid this, Denver offers added incentives of five hundred dollars for obtaining a job, another five hundred dollars for retaining it six months, and a thousand dollars for retaining the job for a year. Massachusetts agencies provide a range of post-employment services to promote long-term work retention and assist with reemployment when necessary.

Reducing the Barriers
Poor physical or mental health, an infant or disabled child, lack of English, lack of recent job experience, domestic violence and substance abuse can all be barriers to work among welfare recipients. Some communities have begun to address these.

  • Specialists in mental health and in alcohol and drug abuse are stationed within TANF offices in the Florida communities of Miami and Tampa.
  • Jersey City, New Jersey contracts with an outside provider for substance abuse assessment and referrals at the TANF office. Jersey City also assigns job coaches to work with long-term recipients.
  • Seattle, Washington and Milwaukee use assessment to identify the needs of their long-term recipients and follow up with service referrals.

Working with Struggling Clients
TANF recipients who violate work requirements or other program rules are subject to sanctions that eliminate part or all of their cash assistance. In most states, sanctions can make children as well as adult recipients ineligible for aid. Miami, Florida; Minneapolis, Minnesota and Oakland, California try to bring recipients back into compliance after they have been sanctioned. TANF agencies in these sites contract with community organizations to visit these families in their homes to find out why they were unable to meet program requirements—and to do something about the reasons, if they can.

State Tax Credits
The federal Earned Income Tax Credit (EITC), available in all states, has become one of the most important sources of support for low-income families. The EITC helps to make work pay; that is, it combines with low wages to make working more lucrative than staying home, even after payroll taxes, child care costs, and other work expenses are taken into account. An important feature of the federal EITC is that it is refundable, which means that families whose earnings are so low that the credit exceeds their income tax liability receive a check for the difference.

Fifteen states plus the District of Columbia now supplement the federal EITC with their own earned income tax credits. Eleven of these are refundable. Even the most generous state EITCs, however, have less than half the value of the federal credit. Most states finance their EITCs from general revenues, but Minnesota and Wisconsin pay for theirs with portions of their TANF grants. Montgomery County, Maryland, and Denver, Colorado, have established local earned income tax credits on top of their state EITCs.

Child Care Subsidies
State and federal spending on child care has increased enormously under welfare reform. The Child Care and Development Fund (CCDF) block grant, established as part of PRWORA, received more money than the four separate programs it replaced. Even more importantly, states have been able to use their TANF grants for child care. About one-fifth of TANF-related spending now goes toward child care, and in recent years more federal money has been spent on child care through TANF than through the CCDF.

Despite the increased spending, more parents need child care subsidies than get them in many states. Current or former TANF recipients are typically given priority in obtaining child care subsidies. This practice, however, can be seen as unfair toward working mothers at similar income levels who do not qualify for subsidies because they have never been on cash assistance. Illinois, Rhode Island, Vermont and Wisconsin provide child care on the same basis for all low-income families, without reference to past or current welfare status.

Re-Authorizing Creativity
It is hard to know at this point how much low-income children and their families benefit from these innovative state and local efforts. Many of the programs are just getting started, and their most important effects may be long-term. We can say, however, that many of these efforts are consistent with what we are finding out about the transition from welfare to work and the conditions under which low-income families are or are not able to be self-sufficient.

We can also say that the future of many of these efforts will depend on what Congress does this year. TANF, the central program in the new, work-based welfare system, must be reauthorized by the end of September. Reauthorization at the current level of funding, set in August 1996, would amount to a cut in real terms, because it would not allow for the changes in the cost of living, which has increased about 13 percent over this period. Proposed increases in the work requirements that states must impose could undermine some of the most promising state and local efforts of the past six years. Only if the reauthorized TANF program has sufficient funding and flexibility will the current experiments come to fruition, so that other state and local governments can learn from them.

Kenneth Finegold is a researcher with the Assessing the New Federalism project of the Urban Institute. He is one of the editors of Welfare Reform: The Next Act, a book due for release March 14, 2002, and available through the Urban Institute. The latest research on the effect of welfare reform so far and its implications for reauthorization are the topics of an Urban Institute conference in Washington, DC, also set for March 14.