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PPA786, Class 17: New Welfare Policy PRWORA and TANF ▫AFDC was repealed by the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA).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 has become a big issue in the current 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 or abuse. ▫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 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 TANF Eligibility and Benefit Rules (UI) Who’s Eligible? Eligibility depends on a family’s cash income (including earnings), assets, and family structure (whether pregnant, a minor parent, a stepparent). To encourage employment, states typically disregard some earnings from income before calculating eligibility and benefit levels. Parents on TANF usually are required to participate in work activities and are subject to penalties (sanctions) when they do not. Eligibility requirements and benefit levels vary greatly by state. Federal funds may not be used for a family with an adult who has received assistance for 60 months, though states can exempt up to 20 percent of the caseload from this time limit for “hardship.” Many states have shorter benefit time limits than the federal maximum, although five states did not have time limits in Documented immigrants who entered the country after August 1996 can receive TANF after living in the United States for five years, but states’ rules vary. For example, a single mother and two children living in Colorado could receive a monthly cash benefit of $462 if they have no cash income (e.g., from earnings, child support, unemployment insurance) and if they have not already received cash assistance for five years. The mother must follow all the program rules (such as continual job search) or the family will lose 25 percent of this benefit. If a similar mother works and earns $511 a month, her family would not be eligible for a cash TANF benefit. Colorado disregards $90 a month in earnings before applying the maximum net income eligibility test.vary greatly by state

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. ▫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 Check out:

PPA786, Class 17: New Welfare Policy

PRWORA: Coverage of Immigrants ▫TANF excludes immigrants arriving in the U.S. after 8/22/96 from eligibility for cash assistance, SNAP, and other means-tested programs, including SSI, for a period of 5 years. ▫Between 5 and 10 years (or until they became a citizen), they could receive benefits under the original law, but only if their sponsor’s income was counted in determining their benefits. ▫In 1997, many children, elderly, and disabled immigrants had their eligibility for SNAP and SSI restored, and the provision counting sponsor’s income was dropped.

PPA786, Class 17: New Welfare Policy PRWORA: SNAP Provisions ▫PRWORA also altered the Supplemental Nutrition Assistance Program (formerly known as Food Stamps). ▫SNAP has a 30% implicit tax rate (after disregards), but no work requirement for people with dependents.  “Able-bodied adults without dependents” have to work 20 hours per week or else be limited to 3 months of Food Stamps in any 36 month period.  But able-bodied adults with dependents must only “register for work, accept suitable employment, and take part in an employment and training program to which they are referred.” ▫In 2014, the House passed a farm bill with huge cuts to SNAP, but they were dropped from the final legislation.

PPA786, Class 17: New Welfare Policy SNAP: Participation ▫Presumably because it is a lot less complicated than TANF, SNAP has not seen a drop in participation. ▫Quite the contrary! It was an important source of support for low-income people in the recent recession (more later). ▫Of those eligible for SNAP, 53% participated in 2001, compared to 75% in 2010.

PPA786, Class 17: New Welfare Policy

Overall Impact of Government Programs on Poverty ▫Scholars have estimated the poverty rates with and without government programs. ▫These estimates include both means-tested programs, such as TANF and SNAP, and social insurance, such as Medicare and Social Security. ▫The following figure gives results reported in Alicia Parlapiano, “Fifty Years of Poverty, The New York Times, January 4, 2013.

PPA786, Class 17: New Welfare Policy