Employment and Barriers to Independence
Poverty and Economic
Well Being
Temporary Cash Assistance and Welfare
Welfare Reform After Three Years:
Progress, Prospects and Problems
A Background Paper
November 24, 1999
What Is Welfare Reform? |
How Is Maryland Faring? | Problems and Opportunities
Congress enacted welfare reform in 1996. A principal feature of the law was the creation of the Temporary Assistance for Needy Families (TANF) block grant, which replaced the prior law Aid to Families with Dependent Children (AFDC) program. Key aspects of the law are described below.(1)
Welfare reform provides states with federal block grants in fixed annual amounts through FY 2002. In addition, states must spend annually their own dollars on welfare reform activities at a rate no less than 75% of their FY 1994 expenditures. Maryland receives $229.1 million in federal funds per year. Unspent funds can be carried over to be spent in a future year. Maryland's balance of unspent TANF funds was $156 million as of March 31, 1999. Maryland's maintenance of effort requirement-the amount of required state spending-is $177 million per year.
State and federal funds can be used to meet any of the four goals of welfare reform. Congress articulated four goals for welfare reform. These goals are to:
- aid needy families so that children may be cared for in their homes or the homes of relatives;
- end the dependence of needy parents by promoting job preparation, work and marriage;
- prevent and reduce out-of-wedlock pregnancies; and
- encourage the formation and maintenance of two parent families.
Welfare reform gives states substantial flexibility in how federal and state funds are used to meet these goals. The principal requirement is that expenditures of federal and counterpart state funds promote the stated objectives of the welfare reform legislation. States can provide assistance in the form of cash, or focus on services. States can also assist families outside of the traditional welfare system. In some instances, states can spend available funds without regard to family income.
Welfare reform heightened the focus on work. By 2002, at least 50 percent of the number of 1996 welfare recipients must be either at work or off the welfare rolls. This goal has already been achieved in Maryland and in most other states. In addition, the law prohibits families from receiving federally-funded assistance for more than five years. However, states can continue to provide assistance to families with required state funds without regard to time limits, and can also exempt up to 20 percent of the caseload from the federal time limit requirement.
Maryland's responses to welfare reform are its Family Investment Program and Temporary Cash Assistance (TCA) program.
The principal features are:
- Child support and work first: As a condition of eligibility, recipients must comply with Child Support Enforcement requirements (e.g. assist with paternity establishment) and assign all child support rights to the state. Adult applicants and teen parents must participate in work activities for at least 25 hours per week, increasing to 30 hours in FY 00.
- Local flexibility: Local Departments of Social Services have the flexibility to allocate funds based on local needs. Local offices can use funds for child care, employment and training services, emergency assistance, program administration, and welfare avoidance grants (one-time payments to families that can be used to meet needs, such as car repairs, without coming on to the temporary cash assistance rolls).
- Two- and five-year time limits: To receive benefits after two years, adult recipients must be participating in a work activity. There is a cumulative five-year limit on the receipt of cash assistance, though months in which an adult has earnings do not count toward the five-year limit. After five years, benefits for the adult are cut off, although the child's portion of the benefit continues.
The number of families receiving cash assistance in Maryland has fallen dramatically. Between January 1995 and July 1999, the number of families receiving TCA assistance fell by 65 percent. The cash assistance caseload is at its lowest level since 1969.(2)
The causes for much of the decline in welfare caseloads cannot be clearly explained. However, social science research has pointed to some factors contributing to the national declines. These include the record sustained expansion of the American economy and concomitant creation of new jobs, and the impact of policies to "make work pay," most notably expansions to the earned income credit. Other factors include the new work-focused approach that emphasizes immediate work in place of the prior law emphasis on education and training.
Substantial numbers of former Maryland welfare recipients have "disappeared." DHR reports show that only half of former welfare recipients work in any three month period after leaving assistance. There is no data available on the employment status or well-being of the other half of leavers. Some of these "missing" former recipients may be working in other states or in federal government jobs. Other former welfare recipients may be self-employed, working in jobs uncovered by the unemployment system, or getting by with assistance from companions or relatives. Others may not be getting by.
Meaningful data on the size and condition of each group is unavailable.
Even among former recipients who are working, wages remain well below federal poverty levels. Wages among the half of former recipients for whom earnings data are available remain low. Half of workers, or one quarter of all leavers, are earning more than $800 per month. This suggests that the majority of leavers continue to have family income below the poverty level.(3) (4)
How best to utilize federal and state welfare funds currently in surplus. The $156 million in unspent federal TANF block grant funds, combined with the continued flow of federal block grant funds and required state spending, provides opportunities for creative uses to meet the needs of low-income families in Maryland. (In September, DHR announced plans to transfer 20% of the federal TANF block grant to the federal social services block grant to expand eligibility for child care)
Other possible uses for available funds include:
- repealing previously enacted benefit cuts, and otherwise enhancing benefit levels;(5)
- increasing investment in job training and other support services that address barriers to employment;
- enhancing non-welfare assistance, such as the refundable earned income credit
- creating supported work positions
- saving for an economic downturn (see below).
An economic downturn is likely to increase the welfare rolls. As few believe that the business cycle has been repealed, the inevitable future economic downturn will again increase the number of families with dependent children needing assistance. This likely will coincide with increased pressures on the state budget due to reduced revenues attributable to the economic downturn. Relief from the federal government is not assured, as federal TANF block grant payments are fixed in amount through FY 2002, and uncertain in amount thereafter. As a result, in addition to using available funds to meet current needs, the state may wish to set aside funds for future use.
Substantial numbers of former welfare recipients now working are failing to receive benefits from other federal and state assistance programs for which they remain eligible. Utilization of food stamps has dropped far more than is warranted by known income levels of now-working former welfare recipients.(6) There is information from some states that former welfare recipients are being cut off from Medicaid despite their continuing eligibility. Child care assistance and child support services appear to be other under-utilized programs.(7) Historically, the receipt of cash assistance has been the portal of entry to these programs and services. One challenge is to maintain participation in other programs as TCA caseloads continue to decline.
Adults who continue to receive assistance may have greater barriers to employment. As states embarked on work-focused welfare programs, it was presumed that those with the fewest barriers to employment would be the first leave. Subsequently, as caseloads declined, more resources would be concentrated to meet the needs of those who continue to receive assistance. National estimates prior to reform indicated widespread prevalence of a variety of barriers:(8)
- 10 to 20 percent of recipients had physical disabilities that limit work
- 25 to 40 percent of recipients had learning disabilities
- 24 percent of recipients had experienced domestic violence
- As many as half of recipients had two or more severe or moderate barriers to work (e.g., own health needs, a child with chronic medical needs, substance abuse, mental illness, limited literacy)
More recent data on the characteristics of current recipients are not available. However, it is likely that a substantial number of recipients have barriers that may limit their ability to succeed in the labor market without access to appropriate screening, treatment, and other services. These families may also need continued access to some form of public financial support.
Developing effective programs that address work limitations and result in sustained employment and higher wages. To this point, education and training programs targeted to welfare recipients have had modest impacts on earnings. Even the most successful programs have been largely ineffective at boosting wages for large numbers of recipients up to a level that allows them to achieve a minimally adequate level of consumption without other supports. Nonetheless, the need to overcome barriers to work, boost skill levels and prepare recipients for career track jobs continues to exist.
The likely characteristics of successful programs are emerging from state and local practices. These characteristics include providing a mix of services that blend work and learning, maintaining a continuum of services after program completion or initial job placement, and making job quality a central goal. The challenge will continue to build on these and other practices to create effective programs that meet individual needs. One challenge will be to prepare clients for jobs that include the potential for wage progression over time. While lower-wage retail and personal service jobs will continue to be available for welfare recipients, in general these jobs have limited prospects for wage growth and will not allow families to meet basic needs on wages alone.
Notes:
1. The federal welfare law made significant changes to other safety net programs, including food stamps, Supplemental Security Income, child care assistance, child support enforcement, and Medicaid. The law also limited access to safety net programs for immigrants. This paper focuses only on the changes relating to the creation of the TANF block grant.
2. Sources: Department of Human Resources, Family Investment Administration, Monthly Statistical Reports (various months); and, U.S. Department of Health and Human Services, Assistant Secretary for Planning and Evaluation.
3. School of Social Work, University of Maryland-Baltimore, Life After Welfare, October 1999.
4. In 1998, the federal poverty threshold was $13,003 for a family of three, and $16,660 for a family of four.
5. Upon enactment of the federal welfare law, state officials predicted that available funds would be insufficient to meet welfare spending needs. As a result, some benefit cuts were enacted: the $50 child support pass-through was repealed; eligibility for benefits was delayed until 14 days after the date of application; and benefits were reduced by $60 per month for families that received federal rental housing assistance.
6. From 1995 to 1997, the decline in the number of people receiving food stamps-4.4 million-was five times greater than the decline in the number of people in poverty. This is noteworthy, as food stamp income eligibility limits are slightly above the poverty line. See, for example, Center on Budget and Policy Priorities, Poverty Rates Fall, but Remain High for a Period with Such Low Unemployment, October 1999.
7. The U.S. Department of Health and Human Services estimated that 8 percent of eligible children in Maryland were served by the Child Care and Development Fund in federal fiscal year 1998. U.S. Department of Health and Human Services, Administration for Children and Families, Access to Child Care for Low-Income Working Families, October 1999.
8. Source is Amy Johnson and Alicia Meckstroth, Mathematica Policy Research, Ancillary Services to Support Welfare to Work, June 1998.