How States Use Federal and State Funds Under the TANF Block Grant
Recently both the House and Senate passed budget plans that would turn key safety net programs into block grants. The House plan included block grants for both Medicaid and the Supplemental Nutrition Assistance Program (SNAP); the Senate plan converted much of Medicaid into two block grants. Block grant proponents often tout the replacement of the Aid to Families with Dependent Children (AFDC) program with the Temporary Assistance for Needy Families (TANF) block grant under the 1996 welfare law as a model for how to restructure key federally funded safety-net programs for low-income families. A close examination of how states have used the funds under TANF, however, provides a cautionary tale about the dangers of block-granting core safety-net programs and providing extensive flexibility to states on use of the funds. The cash assistance safety net for the nation’s poorest families with children has weakened significantly under the TANF block grant.
Beginning in TANF’s early years, when the economy was strong, shrinking cash assistance caseloads freed up federal and state funds that had gone to poor families in the form of benefits. States used the flexibility of the block grant to redirect those funds. Some of the freed-up funds initially went to child care and welfare-to-work programs to further welfare reform efforts. But over time, states redirected a substantial portion of their state and federal TANF funds to other purposes, in some cases to substitute for — or “supplant” — existing state spending. And when need increased during the Great Recession, states were often unable to direct the funds back to core welfare reform services and instead made cuts in basic assistance, child care, and work programs.
Currently, states spend only slightly more than one-quarter of their combined federal TANF funds and the state funds they must spend to meet TANF’s “maintenance of effort” (MOE) requirement on basic assistance to meet the essential needs of families with children, and just another quarter on child care for low-income families and on activities to connect TANF families to work. They spend the rest in other areas, including programs not aimed at improving employment opportunities for poor families (see Figure 1). TANF does not require states to report on whom they serve with the federal or state funds they shift from cash assistance to other uses, let alone what outcomes they achieved. Thus, there is no evidence that giving states this broad flexibility has improved outcomes for poor families with children.
This report examines 2013 spending data to understand spending patterns nationally and to examine the wide variations across states in how TANF/MOE funds are used; fact sheets that CBPP issued separately provide state-by-state information.  (See Box 1 for more detail about this analysis.) The report’s key findings include:
- The share of state and federal TANF spending used for basic assistance (cash welfare grants) has fallen significantly. At TANF’s onset, 70 percent of combined federal TANF and state MOE funds went for basic assistance for poor families. By 2013, that figure had plummeted to 28 percent. There is significant variation across states; 12 states spent less than 15 percent of their TANF/MOE funds on basic assistance in 2013.
- States spend only about a quarter of their state and federal TANF dollars on child care and work activities combined. A key justification for block-granting TANF was to give states flexibility to move funding from cash assistance to work-related activities and or supports (such as child care subsidies). States raised spending in these areas in TANF’s early years but didn’t sustain those modest increases. States used only 8 percent of their TANF and MOE spending for work activities in 2013; 14 states spent less than 5 percent. States spent 16 percent of total TANF and MOE funds on child care; 13 states spent less than 5 percent.
- Core welfare reform activities thus represent roughly half of state and federal TANF spending. Child care, work activities, and basic assistance combined totaled 51 percent of TANF and MOE spending nationally in 2013. The share varied widely across states: six states spent less than 25 percent of these funds on the three categories, while five states spent more than 75 percent.
- States use a large and growing share of the state and federal TANF funds that formerly were used to help poor families meet their basic needs for other state services. In some cases, states have used TANF and MOE funds to expand programs, such as state Earned Income Tax Credits (EITCs) or pre-K, or to cover the growing costs of existing services, such as child welfare. In other cases, they have used TANF/MOE funds to replace existing state funds, thereby freeing those state funds for purposes unrelated to providing a safety net or work opportunities for low-income families.
Box 1: Methodology Used to Analyze TANF and MOE Spending Data
States have broad flexibility in how they spend federal and state TANF dollars for activities that meet any of TANF’s four purposes. a They are required to report quarterly and annually on how much they have spent and for what purposes; the data cited here on states’ use of TANF funds come from these reports. b
Each state reports how much TANF or MOE spending occurred during the reporting period in each of 21 categories or subcategories of spending identified on ACF Form 196 (the form states must submit to HHS). We combine these 21 categories and subcategories into six broader categories, listed below. (See Appendix II for details.)
- basic assistance;
- work-related activities and supports;
- child care (including transfers to the Child Care and Development Fund);
- administration and systems;
- refundable tax credits for low-income working families; and
- other areas, which includes:
- nonrecurring short-term benefits, generally for emergency needs;
- pregnancy prevention and two-parent family formation and maintenance;
- transfers to the Social Services Block Grant;
- spending categorized as “authorized under prior law”; and
- “other nonassistance.”
States also must identify the specific funding source for each expenditure subcategory. If the state used federal funds, it must identify whether they were from the regular TANF block grant or other TANF sources (e.g. the Contingency Fund or TANF Emergency Fund). If the state used MOE funds, it must identify whether they went to a program that also received federal TANF funds or in a separate state program that did not receive TANF funds.
Our analysis uses the term “federal TANF dollars” to include expenditures from the TANF block grant plus any additional federal funds received through the TANF Contingency Fund, TANF Emergency Fund, or TANF Supplemental Grants, which 17 states received until 2012. (See Appendix I for details on the various TANF-related federal funding streams.) Our analysis also combines each state’s MOE expenditure data (rather than separating out expenditures for individual state programs). Finally, we generally combine TANF and MOE spending data rather than focus on whether the funds used for a particular purpose were TANF funds or MOE funds.
a See Appendix I for more background on TANF funding and state spending flexibility.
b The primary source of TANF and MOE spending information is the reports that states file with HHS on a quarterly (and annual) basis on the form ACF-196. See ACF 196 TANF Report Form and Instructions, http://www.acf.hhs.gov/programs/ofa/policy/pi-ofa/2009/200910/pi200910.htm .
The extent to which states have used TANF or MOE funds for areas beyond the core welfare reform areas raises serious concern. TANF’s combination of broadly defined purposes and limited accountability for much of its spending has enabled states to divert funds from supporting the poorest families and use them instead to help fill state budget holes. In addition, the federal TANF block grant has no adjustment for inflation and thus has eroded badly over time, losing one-third of its value since 1997. These two factors — the funds’ diminished value and broadened dispersal — have left states with fewer resources to serve needy families, especially at times of increased need, as the Great Recession and its aftermath showed.
Block grants can weaken accountability and oversight, leading states to spend significant federal funds in ways that Congress did not intend. For many states, the TANF block grant has led to a severe erosion of the cash assistance safety net and very limited fulfillment of the promise of using the funds saved to support work.
The TANF block grant fundamentally altered both the structure and the allowable uses of federal and state dollars previously spent on AFDC and related programs.  Under TANF, the federal government gives states a fixed block grant totaling $16.5 billion each year. States that meet specified criteria may also qualify for federal “Contingency Funds”; roughly 20 states have done so for the last several years. Under the federal TANF law’s MOE requirement, states must maintain a certain level of state spending, based on a state’s spending for AFDC and related programs prior to TANF’s creation in 1996. (States are required to maintain 80 percent, or in
some cases 75 percent, of their historic spending level.) In 2013, states spent $31.6 billion in combined federal TANF and state MOE funds, comprising $16.7 billion in federal TANF funds and $15 billion in state MOE funds. 
States can use their federal TANF dollars and state MOE funds to support a broad range of activities related to promoting the four purposes of TANF specified in federal law: (1) assisting needy families so children can be cared for in their own homes or the homes of relatives; (2) reducing the dependency of needy parents by promoting job preparation, work, and marriage; (3) preventing out-of-wedlock pregnancies; and (4) encouraging the formation and maintenance of two-parent families. 
Reduced Spending on Basic Assistance Has Weakened Safety Net
States spent $8.7 billion of federal TANF and state MOE funds on basic assistance for poor families in 2013, representing 28 percent of all TANF and MOE funds spent that year. By contrast, at TANF’s onset, states spent $14 billion on basic assistance, representing 70 percent of combined federal TANF and state MOE funds. While the strength of each state’s safety net and its benefit levels varied under AFDC, basic assistance represented the single biggest use of federal and state funds for all states.
The share of state and federal TANF funds spent on basic assistance varies widely across states, from 7 percent to 52 percent in 2013.  Seven states spent less than 10percent on basic assistance, while 11 states spent more than 30 percent (see Figure 2). Not surprisingly, the states that spend the smallest shares of their TANF/MOE funds on basic assistance generally have lower benefit levels and assist a smaller share of poor families than the typical state. 
California and Texas provide sharp contrasting pictures of TANF’s safety-net role. In both states, the share of poor families receiving cash assistance has fallen since 1996 and the number of families in “deep poverty,” with incomes below half of the poverty line, has increased. Both states have large populations of poor families, but the child poverty rate and the share of individuals who are food insecure are higher in Texas than in California.
California spent 46 percent of its TANF and MOE funds on basic assistance in 2013. For every 100 poor families with children in the state, 66 received TANF cash assistance. Monthly benefits for a family of three with no other income were $638 in 2013, or 39 percent of the poverty line. California ranks 33rd in the nation with respect to food insecurity.
Texas spent 9 percent of its TANF and MOE funds on basic assistance in 2013. For every 100 poor families with children in the state, 5 received TANF cash assistance. Monthly benefits for a family of three with no other income were $271 in 2013, or 17 percent of the poverty line. Texas ranks 49th in the nation with respect to food insecurity.
Moreover, for families still receiving cash assistance, benefits have plummeted in value in nearly all states — falling 20 percent or more since TANF’s creation in 38 states, after adjusting for inflation. Today, in most states, benefits for a family without other cash income now fall below 30 percent of the poverty line. 
Because basic assistance reaches fewer poor families and provides less to those it serves, TANF lifts fewer children out of deep poverty than AFDC did. Nationally, the number of children in deep poverty has risen by nearly 50 percent since the advent of TANF, from 1.5 million to 2.2 million.  Also, research suggests that the spending decline on basic assistance has contributed to a rise in “extreme poverty” (defined as income of less than $2 per person per day, a standard that the World Bank uses to measure poverty around the world). The number of U.S. households with children living below this $2 threshold has doubled since TANF’s creation; among single-parent families, the number has tripled. 
Despite Welfare Reform Rhetoric, States Spend Little on Work Activities
A central tenet of TANF is that cash assistance should provide temporary support while a family engages in required activities to help it connect to or prepare for work. Yet, most states spend little of their TANF funding on work-related activities. States initially raised spending here somewhat under TANF, but funding has been flat or cut over the last decade. In 2013, states spent $2.5 billion in TANF and MOE funds on work-related activities, representing 8 percent of total TANF/MOE spending; both figures are the lowest in over a decade. 
As with basic assistance, states vary widely in the share of TANF and MOE spending going to work-related activities, which ranged from 1 percent to 47 percent in 2013 (see Figure 3). Some 14 states spent less than 5 percent of their funds in this category, while 15 states spent more than 15 percent (and two of them spent more than 40 percent).
Some families receiving these employment or training services may not be receiving cash assistance; for example, this category includes transportation to work for some low-income families that have begun working and ceased receiving (or never received) cash assistance. It also includes wage subsidies, work-related activities, or education and training, some of which goes to low-income families not receiving cash assistance. While this is a permissible use of TANF or MOE funds, it means that some states are investing even less in work programs for cash assistance recipients than the numbers suggest.
Thus, despite the rhetoric of welfare reform — and the fact that many families receiving TANF have significant employment barriers and limited employment prospects — states have withdrawn funding from these activities over most of the last decade. States for the most part are not putting the funds freed up from reduced caseloads into helping TANF recipients prepare for or find work.
Child Care Needs Remain Unmet, Despite Initial Spending Increase
Another central tenet of welfare reform was that states could spend more of the funds on child care to support work, rather than on cash aid. TANF/MOE spending on child care rose dramatically in TANF’s early years, from $1.1 billion in 1997 to $5.9 billion in 2000.  However, this spending has been flat or declining for over a decade, fluctuating between $5 billion and $6 billion annually. The 2013 figure of $5 billion was the lowest in over a decade. 
State spending on child care varies tremendously, ranging from 0 percent to 69 percent of TANF/MOE spending in 2013 (see Figure 4). Ten states spent more than 30 percent of their TANF/MOE funds on child care, two of which (Delaware and Illinois) spent more than 50 percent. At the other end of the spectrum, 20 states spent less than 10 percent of TANF/MOE funds on child care, eight of which spent less than 3 percent.
Some 28 states spent less spent less on child care in 2013 than in 2012.  The recent decline in child care spending reflects more restrictive policies, not less need. About half the states reduced access to child care assistance and/or benefits in 2012, though there were some improvements in 2013. Moreover, this followed two years of larger child care cuts that limited benefits to families in a majority of states.  While some states restored some cuts or improved child care subsidy policies during or since 2013, child care assistance continues to reach only a fraction of families in need, and recent improvements are generally modest and not sufficient to close continuing gaps in families’ access to assistance and the level of assistance available. 
Box 2: Only Half of TANF/MOE Funds Go to Core Welfare Reform Activities
A key argument for TANF’s block-grant design was that states needed much greater flexibility over the use of the federal funds than AFDC’s funding structure provided. Under a block grant, proponents argued, states could shift the funds freed up when families left welfare for work to child care or other work supports, where need would increase. States also could invest more in work programs to reflect the increased emphasis on welfare being temporary and work-focused. Thus, one could reasonably consider the trio of basic assistance, child care, and work activities as the core areas of welfare reform spending.
In the early years of TANF, as caseloads declined, most states did increase investments in work programs and child care. But for the most part, those investments stalled or dwindled as years went by, even as more and more funds that had been spent on basic assistance were freed up as caseloads continued to decline.
Nationally, only about half (51 percent) of TANF and MOE funds were spent on basic assistance, child care, and work programs in 2013. States vary tremendously in their spending on these core welfare reform categories, ranging from 17 percent to 89 percent of TANF and MOE funds in 2013. In seven states, these core categories combined account for one-quarter or less of total TANF spending.Source: www.cbpp.org