Welfare Reform: States Are Using TANF Flexibility to Adapt Work Requirements and Time Limits to Meet State and Local Needs
Published: 2002-03-07T00:00:00

Fast Facts:

Highlights:
section_title: What GAO Found
paragraphs: One-third of the 2.1 million cases of cash assistance provided under federal or state welfare programs in the fall of 2001 went to children. Because no adults in these families received either Temporary Assistance for Needy Families (TANF) or state maintenance-of-effort funds, work requirements and time limits did not apply. Welfare reform legislation passed in 1996 included a caseload reduction credit that reduces each state's mandated participation rate if its welfare caseload declines. Because of the dramatic declines in welfare caseloads since 1996, states have generally seen greatly reduced participation rates for TANF programs. After accounting for cases involving only children, states excluded 11 percent of the remaining 1.4 million families with an adult from federal or state time limits. States' experiences with work requirements and time limits highlight key issues Congress may wish to consider when reauthorizing TANF provisions, including the relatively few families who have reached their time limit so far and the future adequacy of the federal 20-percent extension.

section_title: Letter
paragraphs: Thank you for inviting me here today to discuss the extent to which  families receiving cash assistance are excluded from work requirements  and time limits. The 1996 Personal Responsibility and Work Opportunity  Reconciliation Act (PRWORA) significantly changed federal welfare policy  for low-income families with children, building upon and expanding state- level reforms. When the Congress created the Temporary Assistance for  Needy Families block grant (TANF) to replace the previous welfare  program, it emphasized that the new program was to be transitional in  nature and focus on moving welfare recipients into employment. To this  end, states are required to enforce work requirements and time limits on  most families receiving cash assistance. More specifically, states face  financial penalties if they do not include a minimum percentage of adults  receiving cash assistance in work or work activities each year, referred to  as the mandated participation rate requirement. This mandated rate  increased each year, reaching 50 percent of all families in fiscal year 2002.  In addition, states are to enforce a 60-month lifetime limit on families with  adults who receive cash assistance. To receive its TANF block grant, each  state must also meet a maintenance-of-effort requirement, under which it  must spend at least a specified amount of its own funds, referred to as  state maintenance-of-effort funds (MOE).
Along with these federal requirements, the law allows states considerable  flexibility to exclude families from work requirements and time limits.  First, these requirements only apply to families with an adult receiving aid,  not to cases in which only children receive cash assistance. Second,  PRWORA specifies that up to 20 percent of families receiving assistance  may receive extensions to federal time limits. Third, states may provide  cash assistance not subject to work requirements and time limits if they  use their state MOE in specified ways, such as through a state program  other than their TANF program.
As the Congress considers reauthorization of TANF, you asked us to  determine and assess the states’ implementation of these work  requirements and time limits. More specifically, you asked us to determine  (1) the extent of child-only cases among the cash assistance caseload  funded by federal TANF and state MOE, (2) how states made use of work  requirement flexibility, (3) the number of families states have excluded  from time limits, and (4) key issues related to states’ experiences in  applying TANF work requirements and time limits. The information we  gathered came from site-visits in 4 states, telephone interviews with TANF  officials in 8 other states, and a survey administered to TANF officials in  all 50 states and the District of Columbia. We conducted our work from  August 2001 through February 2002, in accordance with generally  accepted government auditing standards.
subsections: section_title: Background
paragraphs: PRWORA made sweeping changes to national welfare policy, creating  TANF and ending the federal entitlement to assistance for eligible needy  families with children under Aid to Families With Dependent Children  (AFDC). The Department of Health and Human Services (HHS)  administers the TANF block grant program, which provides states with up  to $16.5 billion each year through fiscal year 2002. TANF was designed to  help needy families reduce their dependence on welfare and move toward  economic independence. The law also greatly increased the discretion  states have in the design and operation of their welfare programs, allowing  states to determine forms of aid and the categories of families eligible for  aid. TANF establishes time limits and work requirements for adults  receiving aid and requires states to sustain 75 to 80 percent of their  historic level of welfare spending through a maintenance-of-effort  requirement. In addition, TANF gives states funding flexibility, which  allows states to exclude some families from federal time limits and work  requirements.
subsections: section_title: TANF Establishes Time Limits and Work Requirements for Adults Receiving Aid
paragraphs: TANF establishes a 60-month time limit for families receiving aid. States  have the option of establishing shorter time limits for families in their  state. A state that does not comply with the TANF time limit can be  penalized by a 5 percent reduction in its block grant. While the intent of  TANF is to provide temporary, time-limited aid, federal time limits do not  apply to all forms of aid or to all families receiving aid. First, states are  only to count toward the 60-month time limit any month in which an  individual receives a service or benefit considered “assistance,” which is  defined in the TANF regulations as cash or other forms of benefits  designed to meet a family’s ongoing basic needs. Second, time limits do  not apply to the following types of cases:  1.	 Cases in which the adult in the household does not receive cash  assistance, typically called “child-only” cases.2.	 Families that received assistance while living in Indian country or an  Native Alaskan village where 50 percent of the adults are not  employed.
Third, all states have the option to use federal funds to extend assistance  beyond the federal 60-month limit for reasons of hardship, as defined by  the state. States can extend assistance for up to 20 percent of the average  monthly number of families receiving assistance (“20 percent extension”).States can also extend assistance for victims of domestic violence through  federally approved domestic violence waivers.Finally, assistance that is  provided solely through state MOE is not subject to the federal time limit.
TANF also establishes work requirements for adults receiving aid. After 2  years of assistance, or sooner if the state determines the recipient is ready,  TANF adults are generally required to be engaged in work as defined by  the state. In addition, TANF establishes required work participation  rates—a steadily rising specified minimum percentage of adult recipients  that must participate in federally specified work or work-related activities  each year.  States were required in federal fiscal year 2002 to meet a work  participation rate of 50 percent for all TANF families with adult  members—referred to as the rate for all families. States were also required  to meet a much higher rate—90 percent—for two-parent families. States  must meet these work participation rates to avoid financial penalties.
While states have generally met the work participation rate for all families,  many states have faced financial penalties due to failure to meet the two- parent required rate in recent years. HHS issued penalty notices to 19  states in fiscal year 1997, 14 in fiscal year 1998, 9 in fiscal year 1999, and to  7 states in fiscal year 2000.
In addition to establishing federal participation rate requirements,  PRWORA specified that the required rates are to be reduced if a state’s  TANF caseload declines. States are allowed caseload reduction credits,  which reduce each state’s work participation requirement by one  percentage point for each percentage point by which its average monthly  caseload falls short of its fiscal year 1995 level (for reasons other than  eligibility changes).
In addition, federal time limits and work requirements may not apply in  some states that were granted federal waivers to AFDC program rules in  order to conduct demonstration programs to test state reforms.
section_title: States May Choose Various State Funding Options for Providing Cash Assistance
paragraphs: Previously, under AFDC, state funds accounted for 46 percent of total  federal and state expenditures. Under PRWORA, the law requires states to  sustain 75 to 80 percent of their historic level of spending on welfare  through a maintenance-of-effort requirement to receive their federal TANF  block grant. The federal TANF funds and state MOE funds can be  considered more like funding streams than a single program and states  may use their MOE to assist needy families in state programs other than  their TANF programs. In fact, states have flexibility to expend their MOE  funds for cash assistance in up to three different ways, some of which  allow states to exclude some families from time limits and work  requirements.
A state may use its state MOE funds in three different ways to provide  cash assistance for needy families.
Commingling: A state can provide TANF cash assistance by commingling  its state MOE with federal funds within its TANF program.
Segregating: A state can provide some TANF cash assistance with state  MOE accounted for separately from its federal funds within its TANF  program.
Separating: A state can use its state MOE to provide cash assistance to  needy families in any one or more non-TANF state programs, referred to  as “separate state programs.”
Each state may choose one or more of these options to provide cash  assistance. In some cases, in this testimony, we refer to the second and  third options as using “state-only” funds when the distinction between  segregating and separating funds is not necessary. In addition, we focus  only on cash assistance and not on other forms of aid or services,  including, for example, child care and transportation, for which time limits  and work requirements generally do not apply.
How a state structures its funds determines which TANF rules apply to the  needy families being served. (See table 1.) When a state commingles funds,  it must meet all TANF requirements. For example, states that commingle  all their state MOE with federal funds are only able to exclude families  from time limits through the 20 percent extension, cannot exclude families  from counting towards the federal work participation rate, and cannot  provide assistance to certain groups of legal immigrants.
States may exclude families from time limits by funding their cash  assistance with state MOE, either through “segregated funds” or in any  non-TANF state programs. More specifically, any month of cash assistance  funded solely by state MOE funds does not count toward the federal 60- month limit and may be provided to families who have reached their  federal time limit. States may exclude families from federal time limits if  they
Stop the clock. States can “stop the clock” so that a family’s cash  assistance does not count towards the federal time limit. This is  accomplished by funding any month of cash assistance with state-only  funds rather than with federal or commingled federal and state dollars.  For example, if a state provides monthly cash assistance to working  families with state-only funds, those months of assistance do not count  toward the federal time limit.
Extend the time limit. States can provide cash assistance beyond the  60-month time limit by using state-only funds. A state may extend a  family’s time limit because it has determined that the adult needs more  time to prepare for and find employment.
Finally, while not required by federal law, states may choose to apply time  limits on their state-funded assistance. In this case, states may also decide  to stop the clock or extend time limits for certain families.
In addition, families provided cash assistance funded by state MOE  through non-TANF state programs are not subject to federal work  requirements, though states may choose to impose their own work  requirements on these families.
section_title: One-Third of Families Receiving Cash Assistance Are Child- Only Cases Not Subject to Federal Work Requirements or Time Limits
paragraphs: States reported that in the fall of 2001, 2.1 million families received cash  assistance funded with federal TANF or state MOE dollars, with about  700,000, or one-third, of these families composed of children only.  Generally, child-only cases are not subject to work requirements or time  limits. The most common types of child-only cases were families in which  the  caregiver is a nonparent, such as a relative, often a grandparent (40  percent); parent is receiving Social Security or Supplemental Security Income  and not eligible for TANF (25 percent); parent is a noncitizen ineligible for federally funded TANF (23 parent is subject to sanctions (7 percent). (See figure 1.)
The breakdown of child-only cases varied significantly across states,  however. For example, child-only cases in which the parent is an ineligible  noncitizen ranged from 0 percent in ten states to 39 percent in California  and 77 percent in Texas; this variation is likely due to the variation in  immigrant populations across the states. (For more information on each  state’s child-only caseload, see Appendix I.)
section_title: States Use Flexibility under PRWORA to Exempt Some Families from Federal Work Requirements
paragraphs: Reduced federal participation targets—due to declining caseloads and the  caseload reduction credit—and states’ use of their MOE funds in non- TANF programs give states considerable flexibility in implementing work  requirements. (For more information on how states use their MOE funds,  see Appendix II). Since the implementation of welfare reform, states have  experienced strong economic growth and welfare caseloads have declined  dramatically, from 4.4 million in August 1996 to 2.1 million as of  September  2001, marking a 52 percent decline in the number of families  receiving cash welfare. The work participation target rate for every state in  fiscal year 2002 is 50 percent for all families. However, once the caseload  reduction credit is taken into account, the target rates can be greatly  reduced. For example, as shown in table 2, the actual rate for all families  reported by HHS for fiscal year 2000 was zero in 31 states and less than 25  percent in all but two states.
As a result, states have had increased flexibility in determining the  numbers of adults that are to be working or preparing for work and the  types of activities required. For states to count families’ activities towards  the work participation rate, families have to be participating in federally  approved work activities. In a previous report, we found that some states  included recipients in a range of work and work-preparation activities that  extend beyond those that meet federal work participation requirements,  particularly to meet the needs of recipients considered hard to employ.Officials in one state told us that because the work participation rates are  so low due to caseload reduction credits, states have more flexibility in the  types of activities or services provided, for example, substance abuse  treatment or mental health services, without fear of not meeting their  federal work participation rates. In other cases, the lower target rates give  states more flexibility in exempting TANF recipients considered hard to  employ from meeting work requirements, as we found in our report on  TANF recipients with mental and physical impairments.
In addition to the flexibility provided by reduced federal target rates, many  states have increased work requirement flexibility by using state MOE  funds to provide cash assistance through non-TANF programs, as allowed  by PRWORA. Twenty-six states use state MOE funds to provide cash  assistance through separate state programs, which allows states to  exclude families from federal work requirements and to serve certain  immigrants ineligible for federal TANF. Sixteen of these states provide  cash assistance to two-parent families through these programs. Several  state officials told us they provide aid in this way to avoid the risk of  financial penalties for failing to meet the federal two-parent work  participation rate. State officials told us that two-parent families often  have as many or more challenges as single parents, making the higher  target rate for two-parent families difficult to meet.
While states expressed concern about failing to meet the federal target  rate for two- parent families, all 16 of these states imposed their own state  work requirements on these families. Thirteen of the 26 states used state  MOE in separate programs to provide cash assistance to certain legal  immigrants not eligible for federal TANF aid; these 13 states still apply a  state work requirement for these families as well. Overall, approximately  nine-tenths of the families receiving cash assistance in separate state  programs are still subject to a state work requirement. While states  generally imposed work requirements, about half of them also have  policies in place to exclude families facing significant barriers to work  from work requirements. For example, 13 states exclude families with an  adult who is disabled and 13 states exclude families that care for someone  with a disability.
section_title: States Excluded 11 Percent of Adult Families from Federal and State Time Limits
paragraphs: States generally targeted time limit exclusions to families they considered  hard to employ, families that were working but not earning enough to  move off of TANF, and families that were cooperating with program  requirements but had not yet found employment. During fall 2001, states  excluded from federal or state time limits 11 percent of the 1.4 million  cash assistance families with adults. The number of families excluded  from time limits may increase in the future because most families have not  yet reached their federal or state-imposed cash assistance time limit.
subsections: section_title: Federal 20 Percent Extension and State- Funded Time Limit Exclusion Policies Generally Target Working or Hard-to-Employ Families
paragraphs: States targeted time limit exclusions to families they considered “hard to  employ”, families that were working but not earning enough to move off of  TANF, and families that were cooperating with program requirements. The  majority of states excluded “hard-to-employ” families in which the parent  had a disability or was caring for a child with a disability, families dealing  with domestic violence, and families with a head of household of  advanced age. (See figure 2.) Some of these exclusions are granted on a  temporary basis (such as for disabled recipients pending transfer to the  Supplemental Security Income program), and others are granted for longer  periods of time (such as for family heads of advanced age).
Twenty-two states exclude working families from time limits, either  through the federal 20 percent extension or by using state-only funds.  Maryland and Illinois, for example, “stop the clock” for working families  by funding them with state-only dollars. Officials from both states told us  that their states adopted this policy to reward working families for  complying with program requirements.
States that exclude families by using state-only funds use similar criteria to  those used by states that rely solely on the federal 20 percent hardship  extension. Using the 20 percent extension, states are able to extend time  limits for a broad range of families, such as families cooperating with  program requirements or making a “good faith effort” to find employment.  For example, officials from Michigan, a state that commingles all of its  state funds with federal funds, told us that they will use the 20 percent  extension for all recipients following the rules of the program; if the  number of families they want to provide and extension to begins to exceed  20 percent, they plan to continue providing assistance through state funds.
Almost half of the states exclude families making a good faith effort to find  employment.
section_title: While States Had Excluded 11 Percent of Families with Adults from Time Limits as of Fall 2001, This Percentage May Increase as More Families Reach Their Time Limits
paragraphs: States have excluded from time limits 11 percent of the approximately 1.4  million families with adults receiving federal- or state-funded cash  assistance. (See Appendix III for the percent of exclusions by state.) As  shown in figure 3, 45 percent of these families—mostly in Illinois,  Massachusetts, and New York—were excluded through states use of state- only funds. An additional 43 percent of the families were excluded from  time limits under federal waivers granted to states before welfare reform  to conduct demonstration programs. Many of these waivers remain in  effect.
Even though states are free to exclude all state-funded families from time  limits, 64 percent of state-funded families that include adults were still  subject to a time limit imposed by the state. Twenty-six of the 33 states  with state-only funds apply a state time limit to some or all of their state- funded cases. (See Appendix IV for additional information on state choices  regarding funding and time limits.)
The percentage of the caseload that is excluded from time limits may  increase, since most families have not reached their time limit. In 22 states  TANF had not been in effect long enough for families to reach either the  federal or the state time limit by the time we conducted our survey. Even  in those states where it was possible to have received 60 months of cash  assistance, many families had not reached their time limit because they  have cycled on and off welfare, slowing their accrual of time on assistance.  As a result, only 15 states had begun to use the federal 20 percent hardship  extension, and all of these states were applying it to less than 6 percent of  their total caseload. One state we visited, California, told us it estimated  that over 100,000 families with adults would reach the federal time limit in  the next year. California plans to use state-only funds to continue aid  beyond 60 months to children by removing the adult from the case.  California also plans to continue aid to families that are making a good  faith effort to find employment and to families that are hard to employ  because the adult is aged, disabled, caring for a disabled family member,  or experiencing domestic violence.
section_title: States’ Experiences with TANF Highlight Issues for Reauthorization
paragraphs: States’ experiences with implementing TANF time limits and work  requirements for families receiving cash assistance highlight key issues  related to reauthorization of TANF provisions. Officials from the four  states we visited and eight states we interviewed shared their views on  work requirements and time limits, and the flexibility they have to  implement them. Some state officials commented on the limited extent of  states’ experiences with time limits, given that many families have not yet  reached their time limits, as well as their inexperience with operating  TANF during times of state budget pressures. State officials also  highlighted their concerns about the federal 90 percent work participation  requirements for two-parent families.
subsections: section_title: States Support TANF Flexibility, but Some States Have Concerns
paragraphs: In general, state officials we spoke with were supportive of time limits and  work requirements. For example, Maryland officials said that one  advantage of time-limits assistance and work requirements was that  families understood that the receipt of cash assistance was no longer an  entitlement, thereby changing the culture of welfare. In addition, another  Maryland official noted that time limits encourage caseworkers to link  families, particularly the hard to employ, to the services they need to  become self-sufficient. States also said that, for the most part, flexibility in  implementing time limits and work requirements were important in  allowing them to meet the needs of special populations while supporting  the federal goal of reducing dependency. The flexibility in implementing  their own time limits helps to ensure that states can adapt the federal  program to meet state and local needs while still emphasizing the  transitional nature of cash assistance through time limits.
While state officials were generally supportive of TANF flexibility, officials  in almost all of the states we spoke with expressed the desire to have more  flexibility in counting education and training towards the federal work  participation rate.  Some states officials also expressed a desire to count  activities such as mental health and substance abuse counseling towards  the federal work participation rate.  The states that did not opt for  additional flexibility through the use of state-only funds expressed two  general concerns. First, they were uncertain about the consequences of  their funding flexibility under TANF. A Mississippi TANF official told us  that the state plans to follow the federal regulations rather than risk  penalties by establishing its own program rules that could become  confused with the federal regulations. Second, Colorado state officials  were concerned about the potential administrative burden that could  result from creating separate funding or programs that used state-only  funds.
section_title: Changing Economic Conditions May Pose Difficult Choices for States in the Future
paragraphs: Up until very recently, TANF has been implemented under conditions of  strong economic growth, with declining cash assistance caseloads and the  resulting increase in resources available to states to assist families. This  has fostered increased flexibility in how state officials use their federal  TANF and state maintenance-of-effort dollars. Several states we  interviewed now face budget pressures and increasing cash assistance  caseloads, which could affect the policy choices they make about funding  mechanisms and time limit exclusions in the future. This could affect some  states’ choices regarding continued support for families that take longer to  become self-sufficient. California state officials noted that its plan to  continue aid for all children whose parents have reached time limits may  pose a future financial burden on the state.
section_title: States’ Experiences with Adequacy of the 20 Percent Federal Extension May Change as More Families Reach Time Limits
paragraphs: State officials generally thought the 20 percent federal extension was  adequate now, but were less sure about the future, given that many  families have not yet reached the 60-month time limit. Given that states’  experiences with families reaching their time limits is still limited, it is  important to emphasize that much remains unknown nationwide about the  numbers, characteristics, and experiences of families who have reached or  are close to reaching federal time limits on assistance. In the past we have  recommended that HHS work with state officials on this issue to promote  research and provide guidance that would encourage and enable state  officials to identify who has reached the 60-month time limit before they  are able to work. HHS has taken steps to do so.
section_title: States Support the Goal of Helping Two-Parent Families Reduce Their Dependency but Would Like More Flexibility in the Federal Two-Parent Work Participation Rate
paragraphs: State officials cited their difficulties in meeting the federal work  participation target rate for two-parent families and a few discussed their  solutions—serving two-parent families in separate state programs to avoid  potential financial penalties. These states typically apply their own work  requirements and time limits to these families, demonstrating the states’  expectation that these families take steps to reduce dependency in the  absence of a federal requirement to do so.
Mr. Chairman, this concludes my prepared statement. I will be happy to  respond to any questions you or other members of the subcommittee may  have.
section_title: GAO Contacts and Acknowledgments
paragraphs: For future contacts regarding this testimony, please call Cynthia M.  Fagnoni at (202) 512-7215 or Gale Harris at (202) 512-7235. Individuals  making key contributions to this testimony included Sigurd Nilsen, Katrina  Ryan, Elisabeth Anderson, Kara Kramer, Kim Reniero, and Patrick  DiBattista.
section_title: Appendix I: States’ Child-Only Caseloads and Reasons for Child-Only Cases
section_title: Appendix II: State Funding Choices
paragraphs: Most states use some form of state MOE funding to provide cash  assistance to families. Eighteen states relied solely on federal or  commingled federal and state funds in their TANF programs to provide  cash assistance, as shown in figure 4. The other 33 states used at least one  of the state MOE funding options in addition to commingled funds: 7 had  segregated state funds; 17 had separate state programs; 9 had both  segregated funds and separate state programs.
States across the nation have opted to use state MOE funds to provide  cash assistance. (See Table 3.) States with larger caseloads are more likely  to use segregated funds or separate state programs than smaller states;  similarly, states with the smallest caseloads are more likely to commingle  all of their state and federal funds.
Even though two-thirds of the states have opted to use segregated funds,  separate state programs, or both to provide cash assistance, only 11  percent of the total number of families receiving cash assistance is funded  with these funds.
section_title: Appendix III: Percentage of TANF or MOE Families with Adult Recipients in Each State Not Subject to Federal or State Time Limits
paragraphs: Delaware was not able to provide us with data on the families excluded from time limits in its  caseload.
section_title: Appendix IV: State-By-State Information on State Funding, Application of Time Limits, and Use of 20 Percent Extension
paragraphs: X  X X X  X  X  Delaware was not able to provide data on their use of the federal 20 percent extension.