PPA786: Urban Policy Class 17: The New World of Welfare Policy

PPA786, Class 17: New Welfare Policy Class Outline ▫Brief history of welfare laws ▫Provisions of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 ▫Early Impacts of PRWORA ▫PRWORA and the Great Recession

PPA786, Class 17: New Welfare Policy AFDC ▫Aid to Families with Dependent Children, part of the 1935 Social Security Act, was the main federal welfare program until ▫Low-income families with children were entitled to AFDC if one parent was absent or disabled or (in some states) both parents were unemployed. ▫The AFDC “tax” rate was 100% from , 67% from , and 100% from

PPA786, Class 17: New Welfare Policy FSA ▫The Family Support Act of 1988 was an unusual bipartisan compromise. ▫It placed some work requirements on AFDC recipients through the JOBS Program, but the requirements were flexible and could be satisfied through education and training as well as through employment. ▫Moreover, FSA mandated that states provide child care to JOBS participants.

PPA786, Class 17: New Welfare Policy The Waiver Era ▫After FSA was passed, many states wanted to experiment with new provisions, especially ones to encourage work. ▫In the 1990s, HHS started to give states waivers to allow them to implement various reforms of this type, with an obligation to study the impacts. ▫By 1996, 27 states had major waivers and several others had minor ones.

PPA786, Class 17: New Welfare Policy PRWORA and TANF ▫AFDC was repealed by the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA). ▫PRWPRA followed up on President Clinton’s campaign promise to “end welfare as we know it.” ▫This act replaced AFDC with the Temporary Assistance for Needy Families program (TANF). ▫The original legislation authorized TANF until 2010; it has only received temporary re- authorization since then.

PPA786, Class 17: New Welfare Policy TANF: Funding ▫TANF replaced AFDC’s matching grant system (which had higher matching rates for poorer states) with ▫Block grants based on 1996 state welfare spending. ▫This approach:  Eliminated the counter-cyclical impact of federal welfare funding.  Freed up a great deal of money for state experiments when caseloads dropped.  Does not adjust funding when the number of eligible families changes, as in a recession.

PPA786, Class 17: New Welfare Policy TANF: Benefit Schedules ▫TANF benefits exhibit the same wide variation across states that was seen in AFDC. ▫Since 1996, most state have lowered the implicit welfare tax rate, usually from 100% to 50%, although several states are in the 50-75% range and a few still use 100%. ▫A few states have a zero tax rate combined with a cut-off when income reaches a certain point—a type of notch!

PPA786, Class 17: New Welfare Policy TANF Benefits and Poverty (CBPP)

PPA786, Class 17: New Welfare Policy The Real Value of TANF Benefits (CBPP)

PPA786, Class 17: New Welfare Policy TANF: End of Entitlement ▫Under AFDC, every family that met the eligibility criteria was entitled to receive benefits. ▫TANF is a funding stream (with strings), not a program.  If federal funds cannot pay for every family eligible for TANF, a state is not required to raise the funds needed to fill this gap.  This became a big issue during the recent economic downturn (more later).  But states do have to contribute something, based on maintenance-of-effort provisions and financial penalties.

PPA786, Class 17: New Welfare Policy TANF: Time Limits ▫Federal TANF benefits cannot be given to anyone who has received (or who lives in a family that has received) any federal assistance (not just TANF) for more than 60 months. ▫Up to 20 percent of a state’s caseload can be exempted from this requirement based on hardship. ▫A state can give benefits beyond 60 months using its own funds, set shorter time limits, and/or add “intermittent” limits.

PPA786, Class 17: New Welfare Policy TANF: Work Requirements ▫TANF requires that at least 50% of recipients (90% for 2- parent families) must be working. ▫States face severe financial penalties if this requirement is not met. ▫A state can define “work” as subsidized or public-sector employment or community service, as well as job search or job readiness assistance for up to 6 weeks. ▫Education and training generally do not count as “work” unless they are in addition to 20 hours in a job or the recipient is a single parent under 20. ▫Recipients who do not comply must be penalized (although Medicaid cannot be taken away from children).

PPA786, Class 17: New Welfare Policy TANF: Work Requirements, 2 ▫For more on the activities that qualify as “work” and on the participation rate in “work” activities by state, see: and-publications/publication-1/TANF-101-Work- Participation-Rate.pdfhttp:// and-publications/publication-1/TANF-101-Work- Participation-Rate.pdf

PPA786, Class 17: New Welfare Policy PRWORA: Work First Programs ▫The shift to a block grant combined with the decline in case loads freed up a lot of money for welfare-to-work programs. ▫Many of these programs build on the experimental evidence from the waiver era. ▫This evidence suggests that  Training alone doesn’t help much.  Work First programs do boost employment and earnings.  Work First programs with selective training do even better.  So do Work First programs with lower tax rates.

PPA786, Class 17: New Welfare Policy

Source: wpr2012table01a.pdf wpr2012table01a.pdf

PPA786, Class 17: New Welfare Policy TANF: Use of Funds ▫TANF funds can be used for many purposes, such as:  Child Care  Work Related Activities such as Transportation  Pregnancy Prevention  Emergency Assistance ▫Because the block grant is fixed, this has led to movement away from the use of these funds for basic grants.

PPA786, Class 17: New Welfare Policy PRWORA: Child Care ▫The shift to a block grant combined with the decline in case loads freed up a lot of money for child care. ▫PRWORA also set up the Child Care Development Fund to support education and training for parents. ▫However, a state is not required to provide child care for families who receive benefits. ▫Moreover, parents are not exempt from work requirements because they can’t find child care unless they have a child younger than 6.

PPA786, Class 17: New Welfare Policy PRWORA: Child Support Enforcement ▫PRWORA increased emphasis on child support enforcement ▫Recipients of TANF funds must cooperate with child support enforcement efforts (i.e. they must identify the father).

PPA786, Class 17: New Welfare Policy

TANF: Participation ▫All these changes have led to a drop in TANF participation from 4.5 million families in 1996 to 1.6 million in ▫This change mainly reflects a drop in participation by people who are eligible, presumably because the program has become so much more complicated.  Of those eligible, 78.9% participated in 1996, compared with only 33.7% in 2010.

PPA786, Class 17: New Welfare Policy TANF: Participation, 2 ▫As the time limits kick in, participation in the federal program has gone down, while participation in the separate state programs (SSP) and programs supported by maintenance of effort clauses (MOE) have gone up. ▫The role of SSP is particularly large in California, New York, and Ohio. ▫See: caseload-data caseload-data-2015

PPA786, Class 17: New Welfare Policy

Source: years-of-poverty.html?_r=0http:// years-of-poverty.html?_r=0 (EITC)

PPA786, Class 17: New Welfare Policy