Creating a Work-Based Welfare System Under TANF
Sep 01, 1996 | Steve Savner
The Temporary Assistance for Needy Families (TANF) block grant is widely perceived to be a major step in transforming welfare into a work-based system; the new law is described as being "tough on work" because it appears to require states to place increasing percentages of adults in work or work-related activities of some sort. However, much of what needs to be done to create a work-based system will require resources and flexibility that the law does not provide.
A work-based system will require a range of new and more effective services for those who succeed in finding jobs. New and expanded forms of assistance are needed for those who find work, but only at low wages or sporadically. States will have more flexibility than in the past to fashion programs to meet these needs, but may not have the resources to pay for them. In addition, the time limit placed on the use of federal funds to provide assistance may lead states to terminate aid to families that are doing the best they can and making progress toward stable employment.
A work-based system will likely require a substantial new job creation effort. Efforts to use welfare funds to subsidize employment in the private sector have yet to demonstrate an ability to create substantial numbers of new job opportunities. Unpaid work experience may more easily be used to create large numbers of positions, but in the past such programs have had a poor record of preparing participants for unsubsidized jobs. They also present serious risks for the displacement of incumbent workers, and raise questions of the fundamental fairness of requiring work without a corresponding commitment to provide fair compensation for the work that is performed. States will also be able to use federal funds to create public employment programs which, if carefully constructed, offer significant advantages over either wage subsidy or unpaid work experience programs.
The frozen funding and work and participation requirements of the new law limit the ability of states to implement effective reforms, and may lead instead to programs that simply deny aid to needy families. The new law freezes federal funding for most states at levels that will leave them far short of the amounts necessary to provide cash aid to eligible families and meet the new work and participation requirements. At the same time, the rules governing the participation requirements allow a state to substantially avoid the obligation to expand or improve employment-related programs if it is willing to deny or terminate assistance to poor families. Given the projected funding shortfall, the nature of the work and participation rules create a powerful incentive for states to curtail aid rather than to fund and implement effective employment programs.
Introduction
The TANF block grant is widely perceived to be a major step in transforming welfare into a work-based system; the legislation is described as being "tough on work." This perception is based largely on the work and participation requirements that require states to place increasing percentages of adults in work or work-related activities of some sort. As states begin to implement the law in the next year they will begin making critical choices that may lead to the creation of new work-based systems improving the supports available for those who are employed but still poor; providing effective education and training programs for those who lack marketable skills; and creating publicly-funded jobs for those who seek work but are unable to find it. Unfortunately, some states may follow a different path and design systems in which many poor families in which an adult is willing to work but unable to find a job will be denied aid; in which education and training will not be available; and in which many will be required to participate in unpaid work experience programs that do not effectively prepare participants for unsubsidized employment, and that undermine the wages and working conditions of regular employees.
The most important issue will not be merely whether a state meets the new work and participation requirements, but whether it is able to create effective systems that assist recipients of aid to prepare for, find, and maintain stable employment. In some respects the results achieved in any state will depend significantly on factors outside the welfare system, particularly economic and labor market conditions. While the recently enacted legislation offers somewhat greater flexibility in the use of federal funds than previously existed, the imposition of the new work and participation requirements, together with new limitations on the amount of federal funds that will be available, may turn out to impede rather than improve a state's efforts to move toward an effective, work-based system.
Work-Based Welfare Systems Must Address a Wide Range of Needs
I. Support for Low-Wage Workers
In developing a work-based system it is useful to consider at least two different groups of adults whose needs differ in significant respects. The first group are those who will be successful in funding unsubsidized employment, but who may be earning very low wages, who may be employed only sporadically, or both.
Income Support
Individuals in this group are likely to need income support in order to maintain employment. While the federal, and in some cases state Earned Income Tax Credit offer income support to low-wage workers, the vast majority of those who qualify receive those payments only on an annual basis after they file their tax returns. Another approach to providing income support on a more regular basis to these families is through an income supplement provided through the welfare system. Over 35 states have received waivers to offer more generous earned income disregards, thereby providing enhanced support to families in which a parent is working part-time or at very low wages. Under TANF, states will be free to establish whatever policies they wish concerning the treatment of earnings, and may choose to provide income supplements through the welfare system or through alternative state systems, such as a state EITC. States may also choose to withdraw all income support from those employed at very low wages, an option previously foreclosed under AFDC.
Efforts to provide improved assistance to those working for low wages must address, as well, the issues created by the new law's time limit provisions. To the extent states use federal funds to pay for such assistance, months during which benefits are provided will count toward the new 60-month time limit. States might choose to avoid this impact by paying for such programs with state funds. However, most states that have already imposed time limits on aid through the waiver process count months during which a family member is employed but continues to receive aid against the time limit.
Child Care
Quality child care is another critical need for many who enter the labor market. Under AFDC, states were required to provide child care to individuals engaged in work-related activities, and for one year after a family left welfare because of employment. States had access to uncapped federal matching funds to help pay for the required child care. Under the new law, states are free to expand, contract, or eliminate such programs, and will have no obligation to provide child care under any circumstance, including to those who become employed. The federal funds available to states to help pay for child care will now be capped.
Job Retention and Reemployment Services
Many individuals who are able to find jobs will, over time, be employed only sporadically. Individuals in this group may need follow-up services to help them keep their jobs, or to help them become reemployed quickly if they lose their jobs. During the process of finding and perhaps losing a job, particular education and training needs may be identified that will significantly increase the chances that an individual will secure more stable employment. Program administrators around the country seem increasingly aware of the need for such job retention, reemployment, and related follow-up services. However, most states have not initiated programs designed to address these issues. Under TANF, states will be free to use federal or state funds for such purposes if they wish to do so.
II. Support for Those Who Are Unable to Find Employment
A second group of individuals are those who will be unable to find unsubsidized employment even after making a good faith effort to do so. For some, this will result from a lack of skills for which education and/or training may provide the solution. For others, this may occur because there is simply a shortage of employment opportunities in the community. For these individuals participation in a publicly-funded job program may offer the only realistic option for employment. Several options exist for such efforts including subsidy programs to expand employment opportunities in the private sector; work experience programs in which participants perform some type of community service work in exchange for their assistance; and public employment programs which create paid jobs in the public or non-profit sector. Under AFDC/JOBS, federal funds could be used for wage subsidy programs and unpaid work experience, but not to create public employment positions. Under TANF federal funds may be used for all three purposes.
Although wage subsidy programs and unpaid work experience programs have been optional activities under federal law for a number of years, with very limited exceptions, states have not operated either type of program on a large scale. During FFY 1994, less than 7% of the nearly 600,000 individuals who participated in the JOBS program nationally were in work experience, subsidized employment, or on-the-job training programs.1 A GAO survey of program administrators found that inadequate resources and staffing were thought to be the principal barriers to expanding such programs.2
Subsidized Jobs in the Private Sector
During the past several years a number of states have received waivers to create wage subsidy programs that use both AFDC and Food Stamp funds to create subsidies for private employers who hire individuals on welfare. To date it is unclear that any of these new programs have succeeded in placing substantial numbers of individuals. While wage subsidy programs may yield more substantial results in the future, the limited data available to date suggests that these programs may not be a major factor for states attempting to create large numbers of positions for individuals receiving aid.
Unpaid Work Experience
Unpaid work experience programs in which participants work in exchange for assistance have been operated on a larger scale than wage subsidy programs, but they have shown virtually no success in increasing employment or earnings in unsubsidized jobs following participation. Studies were undertaken of three intensive work experience programs in the 1980's in West Virginia, San Diego, California, and Cook County, Illinois. In West Virginia and Cook County, the programs had no impact on employment or earnings. In San Diego, the program had no impact on employment or earnings during a period when the economy was weak, and only a modest positive impact during a different time period when the local economy was strong.3
Public Employment Programs
While states have not created public service employment programs to provide job opportunities for individuals receiving welfare, the results from the Public Service Employment program created under CETA had substantially better results than the unpaid work experience programs described above. Participants in PSE had earnings increases after participation in excess of those achieved by participants in unpaid work experience or classroom training.4 An additional advantage of a position that pays wages as compared to one in which participants work in exchange for public assistance is that the receipt of wages creates eligibility for EITC payments. Like unpaid work experience, the risk of displacing incumbent workers will require careful attention in a large-scale program.
TANF: Tough on Work, Or Tough on Work-Based Reform?
Under TANF, some states and localities may attempt to take advantage of the increased flexibility to structure more effective programs to meet the needs of these two groups of individuals. However, TANF also creates new limits on the amount of federal funds that will be available, and imposes work and participation requirements which in some respects may constrain state activities more than previous AFDC and JOBS rules.
To understand the options states will face as they move to implement the new law, and to appreciate the tensions that will exist as states attempt to create work-based systems, three aspects of the law must be considered.
Funding to implement the new program and the work mandate is generally fixed and frozen for the next five years. The amount made available has been projected by the Congressional Budget Office to be well short of the amount needed to provide cash assistance to eligible families and to implement the new work requirements.
The law's work participation requirements mandate that increasing percentages of adults participate in a set of work or work-related activities. These percentages range from 25% in FFY 1997, and increase by 5% each year until they reach 50% in FFY 2002. In 1994, by comparison, only 13% of all families receiving aid included an adult who was participating in the JOBS program. A state that fails to meet the required rate in any year is subject to a reduction in federal funding.
The law eliminates the requirement that was included in the AFDC statute that all eligible families must receive aid. In addition, the work and participation requirements include a little noticed provision called the "caseload reduction credit," that provides for reduction in the applicable participation requirement for states that reduce their assistance caseloads, whether or not those reductions result from increased employment. These new features create the potential for states to meet the new work requirements not by placing adults in work activities, but rather by simply denying or terminating aid to poor families.
I. The Welfare Bill Imposes Requirements Without Providing Needed Resources
The welfare bill imposes steadily increasing work requirements, but does not provide the corresponding funding states are likely to need to meet the requirements. TANF provides most states with a frozen or near-frozen block grant, in which the federal funding level remains unchanged even as work requirements steadily escalate. There has been much attention to shortfalls in the area of child care, but running a work program also requires non-child care spending for the costs of administration and supervision. Aside from the projected shortfall in child care funding, CBO projects that over six years, if all states maintain their FY 94 level of spending for work programs, the states will be roughly $13 billion short of the funds needed to meet the work requirements.
II. The Bill Invites States to Cut off Aid to Needy Families as a Way to Meet the Work Requirements
In effect, the bill provides a state with two alternative ways to meet the work requirements: increase participation in work, or curtail aid to needy families. This is because a little-noticed provision of the bill allows states to reduce the percentage of families required to participate in work activities based on a "caseload reduction credit." Under this provision, a state could be deemed to meet the work requirements if the state's caseload falls, even if the reason for the reduction has nothing to do with people going to work.
Under the bill, a state's work participation rate requirement is reduced by the number of percentage points by which the state's caseload has fallen since FY 95. For example, in FY 97, the bill provides for a 25% work participation rate. However, if a state's caseload has fallen by 10% since FY 95, the state's participation rate would only be 15%. If the state's caseload has fallen by 20%, the state's work participation rate would only be 5%. If the state's caseload has fallen by 25%, the state's work participation rate would be 0%.
A state's caseload could fall for many reasons wholly unrelated to a state's work program. For example, the caseload could be falling because of a strong economy even if the state has not initiated any substantial reform effort. Or, under the block grant, the caseload could be falling because the state now takes a longer period of time to process applications, or has closed intake, or has imposed new restrictions on eligibility. The caseload reduction credit does not create an incentive to get people into work; it creates an incentive to cut off aid, because it is often cheaper to simply cut off aid than to help someone find a job or provide a parent a slot in a work program.
The provision says that a state will not be credited with caseload reductions that are required by federal law. The provision also says that a state will not be credited for cases diverted from receiving aid if HHS can prove that such families were diverted as a direct result in changes in state eligibility criteria. As a practical matter, if a state has modified 20 or 30 eligibility rules and numerous administrative practices, it will be virtually impossible for HHS to prove what part of a caseload reduction is a "direct result" of differences in eligibility criteria.
Given the bill's $13 billion shortfall in work funding, the caseload reduction credit provision creates a powerful incentive to curtail aid to needy families rather than fund and operate work programs.
Conclusion
In recent years, a consensus has grown that welfare systems need to be redesigned to emphasize employment, and the transitional nature of public assistance. Consensus has also grown that a broad range of strategies will be needed to serve the mix of individuals who rely on public assistance over time. Finally, it is widely accepted that at least in the short-run, additional costs will be associated with work-based reform. The new law purports to be tough on work through a set of participation requirements that essentially ignore outcomes, and that may be avoided by states altogether if they are willing to simply terminate aid rather than promoting employment. The only measure that may be available to assess state performance is the number of families who are receiving aid. One of the many difficult tasks that now faces observers of the welfare system is to assess the validity of a state's claims about the success of its program, to determine whether declining caseloads result from effective programs and administration, as opposed to fortuitous economic conditions, or a willingness to deny or terminate aid to families in need. Conversely, for states whose caseloads remain constant or increase, will such results be an indication of a failed system, or one in which needy families, those with and without earnings, are receiving meaningful assistance through a work-based model? The only thing that is clear at the outset is that the new law has created substantial new expectations while offering only limited resources and problematic mandates.
1. JOBS-ACF-IM-95-5 (October 15, 1995)
2. "WELFARE TO WORK: Most AFDC Training Programs Not Emphasizing Job Placement", GAO/HHS-95-113 (May 1995).
3. See Friedlander, et al, "West Virginia: Final Report on the Community Work Experience Demonstrations" (MDRC, 1986); Friedlander, et al, "Illinois: Final Report on Job Search and Work Experience in Cook County" (MDRC, 1987); Goldman et al, "California: Final Report on the San Diego Job Search and Work Experience Demonstration" (MDRC, 1986).
4. Levitan and Gallo, "Spending to Save: Expanding Employment Opportunities" (Center for Social Policy Studies, 1992), citing data from Westat, Inc. "Continuous Longitudinal Manpower Survey" (1984).