The Personal Responsibility and Work Opportunity Reconciliation Act (P.L. 104-193), enacted in August 1996, replaced AFDC with a block grant to the states, entitled Temporary Assistance for Needy Families. As specified in the law, the objectives of TANF are to provide assistance to needy families so that children may be cared for in their own homes or in the homes of relatives; end the dependence of needy parents on government benefits by promoting job preparation, work, and marriage; prevent and reduce the incidence of out-of-wedlock pregnancies and establish annual numerical goals for preventing and reducing the incidence of these pregnancies; and encourage the formation and maintenance of two-parent families. All these goals are to be accomplished by providing states increased flexibility to design their own programs, thus allowing states to build on the initiatives they began experimenting with before federal reform. However, the law sets some parameters: to avoid financial penalties, states must impose work requirements for adults, meet steadily rising rates of caseload participation in work activities, and enforce a 5-year lifetime limit on the receipt of federally funded assistance, along with several other provisions. To enable HHS to monitor states’ progress in meeting key program objectives, the law also requires states to meet new data reporting requirements. On November 20, 1997, HHS issued proposed regulations for implementing TANF in accordance with the new federal law; however, as of May 1998, these regulations had not yet been finalized. Under AFDC, states were required to provide benefits to all economically needy families with children who applied and were eligible under federal law and whose income and assets were within state-prescribed limits. In fiscal year 1996, over $20 billion in combined federal and state funds were paid in cash assistance to a nationwide caseload that averaged about 4.6 million families a month. Within AFDC, states were required to establish welfare-to-work programs, called Job Opportunities and Basic Skills Training (JOBS), to ensure that AFDC families obtained the education, training, and employment that would help them avoid long-term welfare dependence. Federal matching funds for JOBS were available as a capped entitlement set at $1 billion in fiscal year 1996. Historically, many families were exempt from participating in JOBS, and less than a third of those required to participate actually were able to participate because of limited state funding. In addition, within AFDC, unlimited federal matching funds were available for states opting to provide emergency assistance for families to avoid the destitution of a child or to provide for a child’s living arrangements. Emergency assistance could be authorized for up to 30 days in any 12-month period, and eligibility criteria often differed from those of the regular AFDC program. As of 1995, all states but Alaska and Mississippi had implemented emergency assistance programs, spending about $3.2 billion on these programs nationwide in fiscal year 1996. To ensure states adhered to the goals and requirements of the law governing these programs, HHS was given oversight responsibility to be exercised through its approval, review, and audit functions. Before passage of the new federal welfare reform law, HHS had authority to waive certain statutory program requirements for AFDC, and most states had begun experimenting with various reforms intended to move more recipients from welfare to work. Between January 1987 and the passage of welfare reform in August 1996, 46 states had received approval to implement waivers affecting their AFDC and JOBS programs—in some cases, statewide; in others, only in selected sites. These waiver initiatives included time limits, strengthened work requirements, and teen-parent requirements related to school attendance and living in supervised settings—provisions similar to those subsequently embodied in the new federal law. (See app. II for a summary of states’ waiver provisions approved before passage of the federal welfare reform act.) Because these waivers had been approved and implemented at different times, states were in different stages of implementing their reform efforts when the federal reform law was enacted. Some states continued their waiver programs implemented before federal reform, while other states enacted new legislation to redesign their programs after passage of the new federal law. Oregon, for example, enacted legislation in 1995 and implemented its welfare reform program statewide in July 1996. In contrast, California did not pass welfare reform legislation until mid-1997, with statewide implementation of its new program effective in January 1998. The 1996 federal welfare reform law made sweeping changes to the nation’s cash assistance program for needy families with children. Title I of the law ended the entitlement of families to welfare benefits and replaced the AFDC program, including JOBS and emergency assistance, with block grants to the states under TANF. The fixed amounts of states’ grants under the new law are based on the amount of their grants received in specified fiscal years under prior law, supplemented for population increases under certain circumstances. For fiscal year 1997, federal grants available to the states ranged from $21.8 million in Wyoming to over $3.7 billion in California, totaling $16.7 billion nationwide. With respect to state funding, the federal reform law included a “maintenance-of-effort” provision requiring states to provide 75 to 80 percent of their historic level of funding. Subsequent legislation provided additional federal funds totaling $3 billion over 2 years for Welfare-to-Work Grants to be allocated to states for increased support of activities helping to place and keep individuals in unsubsidized jobs. Federal law also makes federal funding available to states for child care subsidies for low-income families, authorizing $2.9 billion for fiscal year 1997 and up to $3.7 billion in the year 2002. Under the new reform law, states are required to ensure that a significant percentage of these funds are used to provide child care assistance to current or potential TANF recipients. The federal welfare reform law also made significant changes to Medicaid—a federal/state-funded program that provides medical assistance to low-income families. Before welfare reform, AFDC recipients were automatically enrolled in Medicaid on the basis of their eligibility for cash assistance under AFDC. The new law severed the connection between eligibility standards for Medicaid and cash assistance, allowing states to set their own eligibility standards for Medicaid within certain parameters. However, most families who would have been eligible for Medicaid before welfare reform continue to qualify for services. Because of congressional concern that welfare had become a way of life for some recipients, a key purpose of the new law was to promote work over welfare and self-reliance over dependency. In support of this goal, the law provides that states must require able-bodied recipients to participate in work or work-related activities and must impose a 5-year lifetime limit on federal assistance. States must require adults in families receiving TANF-funded assistance to participate in work or work-related activities after receiving assistance for 24 months, or sooner, as defined by the state. If recipients fail to participate as required, states must at least reduce the families’ grant and may opt to terminate the grant entirely. To avoid financial penalties, states must ensure that a certain specified minimum percentage of their caseloads are participating in work or work-related activities each year. These percentages are referred to as “minimum mandated participation rates.” To count toward states’ mandated rates, adult recipients in families must participate a certain minimum number of hours in work or a work-related activity as prescribed in the law—such as job readiness workshops; on-the-job training; and, under certain circumstances, education. The required number of hours of participation and the percentage of a state’s caseload that must participate to meet mandated rates increase over time, as shown in table 1.1. Finally, to help ensure the temporary nature of assistance and to provide further impetus for moving recipients to self-reliance, the law prohibits the use of TANF funds to provide assistance for families with adults who have received assistance for more than 5 years, cumulative over their lifetimes. Families with no adult receiving assistance (commonly referred to as “child-only” cases) are not subject to this limit, and up to 20 percent of a state’s average monthly caseload may be exempt on the basis of hardship or having been subjected to domestic violence. States with time-limit waivers inconsistent with these provisions may delay implementing the 5-year lifetime limit until their waivers expire. Also, states may opt to continue to provide assistance beyond the 5-year limit using state funds. To address concerns about the growing number of children born to unwed mothers and the impact on welfare caseloads, another key purpose of the new law was to reduce out-of-wedlock pregnancies and encourage the formation and maintenance of two-parent families. To this end, the law included provisions requiring HHS and the states to establish goals and take action to reduce the incidence of out-of-wedlock pregnancies, especially among teens, and to provide annual progress reports to the Congress beginning this month. In addition, citing studies that indicate that the increase of teenage pregnancies among the youngest girls has been particularly severe and linked to predatory sexual practices of men who were significantly older, the law also requires states to conduct programs to provide education and training on the problem of statutory rape. To expand their reach to males, these programs are to be provided through law enforcement agencies, the education system, and other relevant counseling services. Instead of prescribing in detail how programs are to be structured, the new law authorizes states to use their block grants in any manner reasonably calculated to accomplish the purposes of TANF. For example, states are allowed to set forth their own criteria for defining who will be eligible and what assistance and services will be available, provided states ensure fair and equitable treatment. States may opt to deny assistance altogether for noncitizens, drug felons, minor teen parents, or those determined to be able to work. Alternatively, these groups could be provided a different array of assistance and services funded by TANF or a separate state-funded program. States may also choose when to require adults to participate in work activities, what types of activities are allowed, whom to grant good cause for failure to participate, and whether or not to terminate grants to entire families for noncompliance. The law balanced this increase in state flexibility, however, with an increase in state accountability for working toward the goals of reform and HHS’ responsibilities for tracking state performance and family outcomes. To enable HHS to rank the states annually on performance and make decisions concerning bonuses and penalties, states are required to submit a detailed quarterly data report. Using the state-reported data, HHS is required to rank the states annually according to the most and least successful work programs, taking into account (1) placements in long-term private sector jobs, (2) overall caseload reductions, (3) diversion of individuals from applying for and receiving assistance, (4) the number of children living in poverty, and (5) the amount of federal assistance provided to the state. HHS is also required to rank the states annually on the basis of the percentage of out-of-wedlock births in families receiving assistance and the reductions in the percentage of out-of-wedlock births from the prior year. These state-reported data also provide the basis for awarding financial bonuses to the states to promote key program objectives. The federal reform law provides $200 million per year for 5 years for bonuses to reward states with high performance in achieving the goals of TANF. States may be awarded bonuses in amounts up to 5 percent of their grants in fiscal years 1999 through 2003. The law also provides $100 million per year for 4 years for bonuses to reward states that demonstrate net decreases in the number of out-of-wedlock births. Up to five states may be awarded these bonuses of $20 million in fiscal years 1999 through 2002. (If fewer than five states qualify, bonuses are increased to $25 million.) The law specifies that the reduction in the number of out-of-wedlock births is to be determined for the most recent 2-year period for which such information is available and that only those states with no increase in abortion rates since 1995 are eligible for the bonuses. Data from the quarterly report are also to be used to determine whether or not the state will be assessed a penalty. The law, as amended, specifies 14 grounds for penalties, including failure to meet the maintenance-of-effort state funding requirement, failure to satisfy the minimum mandated participation rates, failure to implement the 5-year lifetime time limit, and failure to submit a quarterly data report. The total penalty in a single year can range up to 25 percent of a state’s grant. (See app. III for a description of all 14 penalties.) Under some circumstances, HHS may determine that a state has “reasonable cause” for failing to meet some requirement and will not impose a penalty. Proposed regulations indicate, however, that if a state diverts cases to separate state programs or is continuing with inconsistent provisions under waiver, it may not be able to avoid a penalty through a reasonable cause exception. In addition to the quarterly report, states are required to submit their child poverty rates annually, along with a corrective action plan if the rate increases by 5 percent or more from the prior year. And beginning in 1999, HHS is required to submit annual reports on the circumstances of families reaching their time limits and families headed by teen parents. To ensure evaluation of states’ programs under welfare reform, HHS is mandated to conduct research on the costs and benefits of operating different state programs, including effects on welfare dependency, illegitimacy, teen pregnancy, employment rates, child well-being, and any other area deemed appropriate. HHS must also evaluate any innovative approaches it assists states in developing and may help fund states’ evaluation efforts. Finally, HHS is required to work with the states to study and analyze outcome measures for evaluating the success of states’ efforts to move families from welfare to work as alternatives to the minimum mandated participation rates. The Chairmen of the Senate Committee on Finance and the Subcommittee on Human Resources, House Committee on Ways and Means, asked us to monitor and report on states’ efforts to implement programs to meet the stated objectives of title I of the new federal welfare reform law. Specifically, this report (1) describes states’ efforts to require and encourage welfare recipients and potential recipients to assume greater personal responsibility, (2) examines how states are providing services to support the objectives of TANF, and (3) reviews early reported data to assess states’ progress in achieving program objectives. To obtain information for this request, we judgmentally selected for in-depth tracking seven states that reflect a diversity of circumstances based on various program indicators and demographics: California, Connecticut, Louisiana, Maryland, Oregon, Texas, and Wisconsin. Key factors considered in our selection of states included previous AFDC grant levels, AFDC funds per child in poverty, unemployment rates, child poverty rates, urban/rural population, presence of large cities, geographic region, experience with waivers, and whether programs are administered at the state level or by counties. Table 1.2 provides a summary profile of each state selected. To describe states’ efforts to design new programs and provide services, and to assess states’ progress in achieving program objectives, we obtained and analyzed available program documents and data in each of the case study states. We also interviewed state and local program officials and members of welfare advocacy groups in the states we visited. We relied on the states for descriptions of their applicable laws. Table 1.3 lists the sites visited in each case study state. In addition, we analyzed data collected by HHS and other organizations to provide information on other states—and on all 50 states when available. For example, we analyzed HHS data on AFDC family characteristics and participation in the JOBS program to better identify states’ practices before reform. We also reviewed, and included where appropriate, nationwide data on states’ TANF programs gathered and summarized by HHS, the Congressional Research Service (CRS), the Urban Institute, the Rockefeller Institute, the American Public Welfare Association (APWA), and the National Governors’ Association. To help us formulate the methodology for our study, we consulted with GAO’s Welfare Advisory Committee, comprising 11 nationally recognized experts in the welfare area. (See app. I for a list of members.) To provide quantitative data on the programs in the seven states we visited, we relied on data used by these states to manage their programs. In addition, we obtained comments on a draft of this report from the seven states and HHS. We conducted our work between February 1997 and April 1998 in accordance with generally accepted government auditing standards. Consistent with the thrust of the federal welfare reform law of 1996, states are shifting away from a welfare system that focuses on a family’s entitlement and eligibility determination to one focused on moving recipients—and potential recipients—to self-sufficiency. This shift is reflected in states’ efforts to strengthen the work focus of their programs, modify policies concerning eligibility and grant levels to encourage self-reliance, and implement strategies to help reduce the need for welfare. States have generally strengthened their focus on work as a central feature of their reform efforts. Under prior law, limited numbers of AFDC recipients were referred to the JOBS program to prepare for and accept employment. Beginning under waivers and culminating with the enactment of TANF, the AFDC and JOBS programs have been replaced by a single, integrated program. Now, in many states, when people apply for welfare, they are simultaneously enrolling in a welfare-to-work program, and welfare offices across the country are being transformed into job placement centers. In an effort to place individuals as quickly as possible into jobs, these new work-focused welfare programs generally require participation in activities leading more directly to employment, require a higher percentage of recipients to participate, require participation sooner, and impose more stringent sanctions for failure to participate. In implementing this transformation of welfare programs to a more work-focused approach, states have encountered numerous challenges. For example, increasing the percentage of recipients required to participate in work-related activities has required states to change caseworker roles from emphasizing eligibility determination to helping recipients address barriers to work by providing more and different services to those previously exempted from work requirements. How states have changed their programs to meet these challenges is discussed further in chapter 3. Under most states’ welfare reform programs, recipients are expected to participate in work or work-related activities leading more directly to employment, such as job readiness and job search. In response to TANF’s restrictions on the types of activities that count toward minimum mandated participation rates, some states are shifting participants from education and training activities to community service. And in a few states, the number of hours recipients are required to participate has increased to better reflect hours comparable to full-time employment. The previous JOBS program provided states with broad discretion regarding the type of activities assigned recipients; many states emphasized education and training as much as, if not more than, employment. The typical sequence of activities involved initial assessment; development of an “employability plan”; then assignment to an activity such as education, job skills training, job readiness, or job development and placement. Under states’ reform programs, and consistent with the new federal law, greater emphasis is being placed on employment. Many states now require recipients to “test the job market” for a specified length of time before investing in costly assessments or vocational training programs—an approach commonly referred to as “work first.” Under these “work first” programs, recipients typically are provided an orientation and assistance in searching for a job; they may also receive some readiness training. Only those unable to find a job after several weeks of job search are then assessed for placement in other activities, such as remedial education or vocational training. Among our case study states, all but Louisiana have adopted a “work first” approach. In Oregon, officials told us that among those participating in a 4-week job readiness and job search program, 40 to 50 percent report finding jobs by the end of the 4 weeks. Even in sites such as Santa Clara County, California, that had traditionally placed a strong emphasis on education and training under JOBS, officials told us they have found that approach unsuccessful in moving recipients into work and self-sufficiency and that they, too, have embraced the “work first” approach. While encouraging recipients to find jobs as quickly as possible, however, Santa Clara officials said they have continued to emphasize the importance of education. They estimated that about 25 percent of the county’s recipients are able to find jobs with a livable wage, but as many as 75 percent will need to combine work with further training to obtain the skills necessary to move toward self-sufficiency. In Louisiana, officials told us that they have not adopted a “work first” approach because a large percentage of their caseload has very low education and skill levels and is not job-ready. The increased emphasis on employment is reflected in the new federal law’s list of activities that count toward minimum mandated participation rates—a more restricted list than that allowed previously under JOBS (see fig. 2.1). For example, under JOBS, families could participate in job readiness and education-oriented activities indefinitely, with few restrictions. Under TANF, however, job readiness activities may count for no more than 6 weeks per recipient; vocational educational training cannot count for more than 12 months for any individual; and education other than high school or its equivalent counts only if it is directly related to employment. In addition, not more than 30 percent of the number of individuals counted as engaged in work may be in vocational education or attending school as teen parents. Federal law also specifies the minimum number of hours families must participate to count toward the mandated rates. The adult recipient in a single-parent family must participate in countable activities an average of at least 20 hours a week (escalating to 25 hours in 1999, and to 30 hours in 2000 and thereafter). Adult recipients in a two-parent family must participate for a combined total of at least 35 hours a week. Under JOBS, participation was based on the average monthly number of individuals whose combined and averaged hours exceeded 20 hours per week. (For preliminary rates achieved using the new federal criteria for participation, see ch. 4.) Consistent with the increased emphasis on employment in the new federal law, most states have adopted restrictions on the criteria for assigning recipients to training and education activities and the length of time such activities can be assigned. Available 1994 data from the previous JOBS program compared with more recent data under TANF indicate that assignment to job placement activities has increased while assignment to education and training activities, including vocational education, has decreased in most states. While these data reflect various months and may not be comparable across states, they provide a rough indication of the shift taking place within each state. Among our seven case study states, this shift is best exemplified by Connecticut and Louisiana, where the percentage assigned to job placement activities increased more than fourfold between 1994 and 1997, not including those who found unsubsidized jobs (see fig. 2.2). The shift is least apparent in Oregon, which had begun implementing reforms in 1992 and already had a large percentage of recipients assigned to job placement activities in the base year, and in California, which had not yet implemented its reform program but nevertheless doubled the percentage assigned to job placement by 1997. All states had increased the percentage of active participants assigned to job placement activities as compared with education and training activities, although the types of work-related activities assigned those not working in unsubsidized jobs varied greatly among our case study states (see table 2.1). For example, in 1997, all states except Louisiana had assigned more than a quarter of their active participants to job search and job readiness activities. In Maryland, Oregon, Texas, and Wisconsin, over half the active participants not in unsubsidized jobs had been assigned to such activities. In addition, Connecticut, Louisiana, and Maryland had assigned a significant proportion of participants to community service and work experience placements. According to a Louisiana official, many participants were being shifted from education and training activities to community work experience because of TANF provisions that limit the extent to which recipient participation in education and training activities can be counted toward meeting the state’s mandated participation rate. Louisiana officials told us that many of their recipients need remedial training before they can be assigned to vocational education programs, however, and voiced concerns about the limitations TANF places on counting recipients assigned to these activities. In contrast, other states placing fewer recipients in community service activities told us they viewed such placements as a last resort, useful only to provide recipients with little or no work history the necessary experience to obtain an unsubsidized job, or to comply with a state requirement to use such placements once a certain length of time had elapsed without finding a job. Offering subsidies to employers who hire and pay wages to recipients or who provide on-the-job training is one option states can use to help create job opportunities and move recipients into work when more training is needed. In the past, however, such programs have been criticized for subsidizing jobs for participants who could have been hired into unsubsidized jobs. While 37 states indicated in their TANF plans as of November 1997 that they would provide employer subsidies, we found such subsidized employment placements were not widely used. Among our five case study states with subsidized employment programs (California, Maryland, Oregon, Texas, and Wisconsin), state officials told us widespread use of such placements is generally not encouraged because they are expensive and often difficult to negotiate with employers. Maryland had implemented only a small pilot project using subsidized employment in the city of Baltimore, while Texas had implemented a project only in the Corpus Christi area. According to Texas officials, an evaluation of the Corpus Christi project will be completed before the project is expanded to other areas. Oregon had used subsidized employment placements most frequently but, even so, had assigned less than 10 percent of its participants to this activity in 1997. To the extent that such placements are used, job developers generally screen recipients carefully and attempt to secure positions that are likely to result in the recipient’s being hired to an unsubsidized position. For example, Oregon’s “JOBS Plus” program subsidizes employers to hire recipients who lack job skills and experience, but it is a relatively small part of Oregon’s welfare-to-work program. Job developers prescreen recipients before referring them for specific openings; nevertheless, only about half the placements result in unsubsidized jobs, and few big companies are willing to participate in the program. Similarly, Wisconsin’s “Trial Jobs” component is designed for certain clients who lack sufficient work experience to be able to move directly to unsubsidized employment. Trial Jobs reimburses employers up to $300 per month to offset some of the initial costs of new employee training and supervision. Such on-the-job training placements are made for up to 3 months, with a possible 3-month extension in some circumstances, and are expected to result in unsubsidized employment. At least initially, most states adopted the federal minimum standard of 20 hours of participation per week for most recipients in single-parent families, and 35 hours of participation for two-parent families. However, a few states have used the flexibility under TANF to increase the number of hours recipients in single-parent families are required to participate to better reflect hours comparable to full-time employment. For example, in Wisconsin, program requirements call for adult recipients to be assigned up to 40 hours of activities per week, and families receive grant amounts that are prorated by applying a sanction for hours missed without good cause multiplied by the federal minimum wage. In Oregon, the goal is to require 40 hours per week for every adult recipient, but those in certain situations are sometimes allowed to do less. California requires its counties to increase the number of hours of participation per week from 20 to 32 by July 1999, or sooner at county option. Among the three counties we visited, only Fresno had opted to require 32 hours immediately. As discussed further in chapter 4, some state officials noted that tracking actual hours of participation in the various activities has created a huge increase in workload for staff. Under states’ welfare reform programs, a higher percentage of adult recipients are being required to participate in work activities and find jobs. Before reform, parents or caretaker recipients caring for a child under age 3 (or under age 1, at state option), along with those living in remote areas or with mental or physical impairments, were generally not required to participate in JOBS. Now, many states’ reform programs have lowered the age-of-youngest-child exemption to 1 year or even younger and require other traditionally exempt recipients to address their barriers, engage in work activities, and look for jobs. The new federal reform law generally allows states to exempt whomever they choose from participating in their welfare-to-work programs.However, virtually all adult recipients except for single custodial parents caring for a child under 1 year of age are to be included in the calculation of the state’s participation rate. As a result, the extent to which states exempt recipients for other reasons could affect states’ ability to meet prescribed minimum participation rates and avoid financial penalties. Nevertheless, nearly all states are continuing to provide exemptions from participation requirements under some circumstances. In a shift away from blanket exemptions of broad categories of recipients, however, about half the states are making such determinations on a case-by-case basis or describing exemptions as deferrals, delays, or temporary exclusions that will end with resolution of the problem. Among our seven case study states, the percentage of adult recipients required to participate in work activities increased from an average of 44.2 percent in 1994 to 64.8 percent in 1997 (see fig. 2.3). Percentages were highest in states such as Connecticut, Maryland, and Oregon, where expanded participation requirements had been implemented previously under waivers. Percentages were lowest in states such as California, where the state’s welfare reform program had not yet been implemented, and Texas, where the age-of-youngest-child exemption is higher than in most other states. Some case study states are requiring recipients with significant barriers to participate but are allowing a broader range of activities and fewer hours of participation than specified under TANF. For example, in California, Oregon, and Wisconsin, program rules allow recipients with a mental health or substance abuse problem to be assigned initially to treatment or counseling programs, and those with very young children to be assigned fewer than 20 hours of participation per week. In California, as long as such recipients comply with their assigned requirements, they are eligible to continue to receive assistance under TANF up to the 5-year time limit, but they are not counted when determining the state’s participation rate. In Oregon, proposed rules would allow such recipients to receive assistance under TANF as well as count toward the participation rate because of the state’s waiver, which will not expire until the year 2002. During the last quarter of fiscal year 1997, Oregon reported 22 percent of its participants had been assigned to drug, alcohol, mental health, or other counseling programs. Under states’ welfare reform programs, participation requirements are being imposed sooner than under JOBS, with many states requiring participation in job search activities immediately upon application for assistance. Before reform, recipients could wait months—or even years—before being required to participate, and many never were required to participate because of the lack of sufficient services and staff. Now, in many states, new program rules call for applicants to be assigned to job search and placement activities as soon as they walk through the door and are initially screened as potential recipients. As a result, some find jobs and are diverted from receiving monthly cash assistance, as discussed later in this chapter. The new federal reform law specifies that states must require recipients to engage in work activities either when the state determines they are ready to do so or after 24 months of assistance, whichever occurs earlier. According to TANF plans submitted nationwide, as of November 1997, 33 states had adopted the 24-month federal maximum, while 21 indicated that they would require recipients to engage in work activities sooner—including 11 states that require recipients to participate immediately upon application. Two of our seven case study states have adopted the 24-month federal maximum (Louisiana and Maryland), and five require recipients to participate immediately if they are not exempt (California, Connecticut, Oregon, Texas, and Wisconsin). For example, Texas implemented a policy in December 1997 requiring most applicants to attend workforce orientation sessions as a condition of completing the application process. Nonexempt recipients are required to participate in follow-up employment sessions and job readiness and job search activities. California’s plan also calls for all nonexempt recipients to be assigned immediately to job search activities. Even in the two case study states that do not impose immediate requirements according to their state plans, program officials indicated the states are requiring nonexempt recipients to engage in work activities as soon as possible. For example, Maryland state officials told us their program requires individuals to engage in work activities from the moment they come in contact with the local welfare departments. In Louisiana, officials told us that case managers assess recipients’ skills and assign them to a work activity as soon as possible. Many states’ welfare reform programs call for imposing stronger sanctions on recipients who fail to participate in their assigned activities than the sanctions that were allowed before reform. Under JOBS, if a recipient failed to comply with work requirements without good cause, grants could be reduced only by the amount attributable to the noncomplying recipient, and conciliation processes were required to try to secure cooperation before the sanction could be imposed. Now, in many states, program rules call for terminating the entire family’s grant, and conciliation processes have been streamlined or, in some cases, eliminated. The new federal reform law stipulates that if an adult recipient refuses to engage in work activities as assigned, the state must, at a minimum, reduce the family’s grant by an amount prorated on the basis of the individual’s failure to participate; the state may opt to reduce the grant more, up to and including terminating the entire family’s grant. Under waivers prior to federal reform, 26 states had implemented provisions to terminate the entire family’s grant for failure to participate, commonly referred to as “full family sanctions.” According to a summary of state plans compiled by the Urban Institute, a total of 36 states have adopted such provisions under TANF. However, many states have maintained their conciliation processes even though they are no longer required. Five of our seven case study states have adopted full family sanctions: Connecticut, Louisiana, Maryland, Oregon, and Wisconsin. Because Louisiana had only implemented its policy in March 1998, calling for a partial sanction for 3 months followed by a full-family sanction for continued failure to comply, no Louisiana families had received a full-family sanction at the time of our review. In the remaining four states, full-family sanctions had been adopted previously under waivers and had been in effect for at least a year. In these states, we found the number of cases in which full-family sanctions were imposed for failure to comply with work requirements varied widely but that the number never exceeded 1 percent of each state’s total caseload per month (see table 2.2). Nationwide data on full-family sanctions imposed under TANF have not yet been issued by HHS and may differ significantly from the experiences of these states. The structure of states’ sanction and conciliation policies varies. For example, Wisconsin’s policy requires providing cash assistance prorated by applying a sanction for hours missed without good cause, multiplied by the federal minimum wage, and the conciliation process has been eliminated. When initially implemented in March 1996, the policy also required providing no cash assistance if families’ participation fell below 25 percent of scheduled hours. After initial implementation, a relatively high number of Wisconsin families received no cash assistance as a result of sanctions, in part, because no effort was made to contact the families and resolve any barriers to participation before denying assistance. Effective June 1997, Wisconsin eliminated the portion of its policy that required providing no cash assistance to families when participation fell below 25 percent of scheduled hours without good cause, and the number of full-family sanctions imposed has dropped significantly. In October 1997, 220 Wisconsin families received no cash assistance as a result of sanctions, compared with an average of about 550 per month during initial implementation. Wisconsin officials told us they believe their policy of reducing grants on a prorated basis for work hours assigned and not performed and eliminating the conciliation process before imposing sanctions work well as motivators that mirror the real world. In contrast, county officials in Maryland told us their rigorous conciliation processes resulted in fewer terminations of families’ grants, and Oregon officials told us they had terminated very few grants for the same reason. While the threat of grant termination served as a motivator to some extent, welfare office workers in these states said that conciliation processes take the teeth out of sanctions if they provide families an opportunity to keep their grants simply by agreeing to cooperate. Workers said they hoped their conciliation processes would be changed to shorten the process and to prevent recipients from “gaming the system” by agreeing to cooperate and then failing to do so. In Connecticut, relatively few families had their grants terminated after initial implementation, primarily because of the state’s program structure of graduated sanctions. While only 83 families received full-family sanctions during the first 9 months of implementation, 377 families received full-family sanctions over the next 3 months. However, more recent sanction data indicate that the number of sanctions may be subsiding now that the program has been fully implemented. In May 1997, only three cases received full-family sanctions, compared with an average of as many as 126 a month earlier in the implementation process. The early peak in the number of sanctions most likely reflects the conversion of the state’s existing caseload to the new program rules, as well as initial doubts among both recipients and caseworkers that grants actually would be cut off. In imposing full-family sanctions, on the one hand, state officials maintain that if families are experiencing hardship caused by the loss of cash assistance, all they have to do is cooperate to have their grant reinstated. On the other hand, states have usually taken steps to address concerns raised by welfare advocacy groups about the well-being of children in families whose entire grant has been terminated for noncooperation. For example, states have generally adopted safeguards to ensure that families fully understand the implications of their actions, that services are available to help them participate, and that exemptions may be provided under certain circumstances. To ensure the children are not at risk of placement in foster care if grants are terminated, some states, such as Oregon, require a home visit before terminating a family’s grant for noncooperation and may continue to pay rent and utilities directly on behalf of a family to prevent destitution. In other states, including three of our case study states, such concerns have resulted in continuing with only a partial reduction in grant amounts for noncooperation instead of imposing full-family sanctions. All three of these states nevertheless strengthened their sanction processes in other ways. For example, both Louisiana and Texas eliminated conciliation. California shortened its conciliation process and required assistance to be provided as vouchers for rent and utilities for those families sanctioned for more than 3 months. In California’s San Bernardino County, families accepting a reduced grant rather than attempting to participate were automatically referred to the fraud unit for investigation of possible unreported sources of income. Despite these changes, officials we spoke with were skeptical about whether reduced grants alone would be a sufficient motivator for recipients to participate and were concerned that their inability to terminate such cases might affect their state’s ability to meet minimum mandated participation rates over time. Because of the way participation rates are calculated, states can achieve higher rates by closing cases of families who fail to comply with work requirements for more than 3 months. States’ reform programs have generally included various policy changes to reinforce the expectation that recipients will move from welfare to work and that welfare should be temporary, not a way of life. By changing policies on the calculation of cash assistance payments and the provision of support services, many states are attempting to ensure that “work pays”—that is, that recipients who find jobs are better off financially than recipients who do not find jobs. In addition, states have taken steps to limit the time cash assistance can be received—most states have chosen limits consistent with the new law, but some have shorter limits than the federally mandated 5-year lifetime limit. Many states have also adopted various extension and exemption policies as a safety net for families reaching these limits, at least under some circumstances. Finally, while making policy changes to help make work pay and cash assistance temporary, few states have opted to use their increased flexibility under TANF to restrict eligibility for certain groups or to lower grant levels. In fact, several states have expanded eligibility by simplifying income standards and liberalizing the criteria for two-parent families. Making work pay involves the interaction of many factors, including grant levels, the impact of earned income on cash assistance, the availability of support services, the earned income tax credit, and child support. Under the prior system, these factors could interact in such a way that families were financially better off on welfare than working at a low-wage job, and families already on welfare had few incentives to work. As a result, reforms to increase incentives for families to choose work over welfare were among the first reforms that states began making under waivers. Under TANF, states are provided broad discretion in defining policies to help make work pay, such as determining how to calculate payment amounts and grant levels and whether to provide services to those not receiving monthly cash assistance. To be eligible for assistance, families must have income and resources below certain limits defined by the states and referred to as income standards. In determining a family’s eligibility and calculating the amount of the cash assistance payment, allowances can be made for certain assets, such as a home or a car, and if a family member is employed, a portion of earned income can be excluded, or “disregarded,” in the calculation. Under AFDC, the limits on a family’s earnings, savings, and other assets were widely viewed as too low, creating a barrier to families’ attempts to move toward self-reliance. For working families with incomes low enough to still qualify for assistance, after 12 months the AFDC grant would be reduced dollar for dollar for earnings, except for a $90 monthly allowance for work expenses. As a result, to help families prepare for a future without monthly assistance payments, and as part of a general move to “make work pay,” many states adopted waivers to increase their asset limits and change their “earnings disregard” policies to allow families to keep more of their grants when working, or to keep them longer.According to states’ TANF plans as of October 1997, 39 states had increased their countable asset limits, 48 states had increased their vehicle allowances, and 42 states had changed their earnings disregard policies, as compared with what was allowed under AFDC. All our case study states have implemented changes to their asset limits, vehicle allowances, or earnings disregard policies to help make work pay (see table 2.3). Under the new federal welfare reform law, states can also opt to allow recipients to establish individual development accounts to accumulate assets for further education, purchasing a home, or starting a business and not have these assets count in determining their eligibility for assistance. According to TANF plans as of October 1997, 22 states had opted to allow recipients to accumulate assets under restricted savings accounts of some type, including 3 of our 7 case study states: California, Louisiana, and Oregon (see table 2.3). Texas also had plans to implement individual development accounts as authorized by 1997 state legislation. In addition, by making support services available to families who are not receiving monthly cash assistance; by encouraging clients to take advantage of the earned-income tax credit; and, in a few instances, by adjusting grant levels, states are more able to ensure that the working poor are better off than those families relying on welfare and not working. For example, Oregon and Wisconsin provide child care services primarily on the basis of income, regardless of an individual’s status as a welfare recipient or nonrecipient, and Oregon uses state funds to make income-based medical coverage available to low-wage workers who do not meet Medicaid eligibility criteria. In states with policies to provide services on the basis of income rather than welfare status, families may no longer have an incentive to stay on welfare simply to gain better access to such services, and some families may be diverted from receiving monthly cash assistance, as discussed later in this chapter. Also, when clients attend orientation sessions in some states, they are presented with charts to illustrate how they could be better off working for wages than they are receiving welfare grants—financially as well as psychologically. For example, in both Wisconsin and Oregon, a single mother with two children could expect to nearly double her monthly income if working at an unsubsidized job for 40 hours per week, as compared with receiving a cash assistance grant and not working (see fig. 2.4). According to a California welfare advocacy spokesperson, grant levels and income disregards were lowered, in part, to help ensure that the nonwelfare working poor would be better off than those on welfare. To promote the temporary nature of cash assistance and encourage families to move toward self-reliance, the new federal reform law prohibits states from using federal TANF funds to support families for more than 5 years. This time limit is cumulative, for life, for all adult recipients. However, states may continue to use federal funds to provide assistance for up to 20 percent of their caseloads beyond this 5-year limit if families are facing hardship and may continue to provide assistance for additional families using only state funds. States’ welfare reform programs generally include provisions to place time limits on assistance, but they often count months differently and provide different time frames and consequences for those families reaching the limits, compared with those required for claiming federal eligibility under the new law. Officials told us that tracking both state and federal time limits, especially across state lines, poses new and significant challenges for many states. States adopting time limits shorter than the federal 5-year maximum generally have also adopted policies to extend assistance under certain circumstances. In addition, some states provide for using state funds to extend assistance beyond the federal 5-year limit for more than the 20 percent of their caseload that can be exempted on the basis of hardship. As of October 1997, 30 states’ TANF plans included a 5-year time limit on assistance for families, consistent with the federal law. However, nineteen states, including three of our case study states—Connecticut, Louisiana, and Oregon—had opted to impose shorter grant termination time limits on some families instead of (or, in the case of five states, in addition to) the 5-year limit for families. As indicated in table 2.4, Connecticut, Louisiana and Oregon have adopted implementation policies to allow assistance to continue for families reaching the limits under certain circumstances. Among the three case study states with shorter grant termination time limits, as of January 1998, families had begun reaching their time limits only in Connecticut, where program provisions call for terminating assistance after 21 months. Among families reaching their time limits, however, extensions were often granted (see fig. 2.5). Texas imposes both a 5-year grant termination time limit and shorter limits on some recipients, resulting in grant redutions. The shorter limits were implemented under waiver and call for imposing time limits of 12, 24, or 36 months, depending on the extent of the recipients’ education and work experience. When these time limits are reached, the amount of assistance is reduced by the adult’s portion of the grant, but assistance for the children continues. As of November 1997, no Texas families had reached their 5-year termination time limit, but 129 families were receiving reduced grants because they had reached the shorter limits. Two of our case study states—California and Maryland—plan to provide state-funded assistance if the number of families reaching the federal 5-year time limit exceeds the 20 percent of state caseloads that can be exempted from the federal limit on the basis of hardship. In California, families reaching the federal 5-year limit, but not yet reaching the state’s 5-year limit (which started later and counts months differently), will continue to receive full grants with state funds; families reaching the state’s 5-year limit will continue to receive reduced grants for their minor children—again, with state funds. In Maryland, families reaching the federal 5-year limit will continue to receive state-funded assistance for their minor children through a third party or through vouchers. To enforce federal lifetime time limits and determine federal eligibility for a case, states are required to track the monthly receipt of assistance for individual cases indefinitely, including assistance that may have been received in other states. In addition, many states have adopted state-specific time limits differing from the federal limit regarding when the clock started, when a month counts toward the limit, and when the limit is reached. As a result, those states must track receipt of assistance against both a federal and a state clock, often using different criteria. States’ automated information systems generally were not collecting all the data required to track cases against these federal and state limits, and upgrading their systems to do so poses significant new challenges for most states. HHS reported in December l997 that nearly two-thirds of states either are doing nothing to track cases against the federal 5-year limit or are still planning how to do so. APWA reported that, while states are making progress toward automating the tracking for the federal 5-year time limit internally, this tracking requires states to make substantial modifications or replacements to information systems software and communications networks, and to increase data storage capacity, develop new applications, and improve transaction processing speed. Among our case study states, Louisiana, Maryland, and Wisconsin had systems in place to track both federal and state time limits. In California, Connecticut, and Texas, systems were still under development. California officials said that programming their computer system to track both federal and state time limits will be challenging because of the different rules to be applied. The state is trying to implement a “statewide automated welfare system,” but this system is not expected to be up and running before 2002. Meanwhile, California is using data from its Medicaid information system to track which months, if any, a case receives TANF assistance. As of January 1998, Texas did not have the capability to track cases against the federal 5-year time limit and was awaiting guidance from HHS concerning implementation of inconsistent waiver provisions before developing a system. HHS had informed Texas that until the year 2002, when its waiver expires, only those recipients in counties that have been participating in the state’s JOBS program are subject to the federal time limit. But state officials said this gives recipients in non-JOBS counties no incentive to find work, and officials were uncertain about providing guidance to local offices on how time limits should be enforced pending final HHS regulations. Oregon’s data system has the capacity to track months on aid within the state, which it is doing for target populations under the new program; however, no effort is being made to apply this tracking to the time limit issue because, as a result of Oregon’s waiver, no cases are currently subject to the federal limit, and no cases are expected to reach the state limit because of the state’s sanction policy. States face even greater challenges in developing systems that will allow tracking receipt of assistance across state lines. Currently, there is no national computer system that tracks the receipt of assistance under TANF. While HHS has proposed various options, many issues about how best to design a system that can share or exchange information nationwide remain unresolved. Officials in some states, such as Maryland and Wisconsin, told us they are attempting to contact other states for information. Maryland workers are relying on telephone calls to other states to obtain this information, which is time-consuming and lacks any assurance of accuracy, while Wisconsin recently updated an out-of-state inquiry form requesting the number of months recipients were subject to time limitations. Officials in Texas told us that they will track time limits on assistance received only within the state, on the basis of criteria under the state’s waiver. Under federal reform, states are allowed to establish their own eligibility policies for specific groups and to determine grant levels, but most states have not made significant changes. Changes to eligibility policies generally have been limited to simplifying the criteria for two-parent families and denying assistance to convicted drug felons. Further, at least for the present, states generally have maintained grant levels, dispelling concerns that they would immediately engage in a “race to the bottom” by lowering the amount of grants and redirecting those savings to other programs. Although allowed under the new federal welfare law to deny assistance to specific groups, states are continuing to provide assistance to most groups that were eligible for AFDC, and some states are expanding eligibility for two-parent families. Most states, however, have opted to deny assistance to convicted drug felons. Two-parent families continue to be eligible to receive assistance in all states, and in some states, the eligibility criteria have been simplified and expanded. Liberalization of eligibility for two-parent families has been promoted as a way to mitigate disincentives to the formation and maintenance of two-parent families that were perceived to have existed under prior law. To be eligible for AFDC, the law required that one parent in a two-parent family be unemployed or working fewer than 100 hours a month, and have a history of attachment to the workforce. Beginning under waivers and continuing under TANF, many states have taken steps to eliminate some or all of these rules. For example, 32 states received waivers to eliminate the 100-hour rule, and 24 states received waivers for the work history rule. As of October 1997, TANF plans in 35 states called for using the same eligibility criteria for two-parent families as are used for one-parent families. All but one of our case study states had adopted such provisions. In California, the one exception, two-parent applicant families are still subject to the 100-hour rule. Families headed by minor teen parents will also continue to be eligible for assistance in nearly all states, but with new restrictions. For example, in Wisconsin, teen parents under age 18 are regarded as the financial responsibility of their parents and are ineligible for cash assistance payments. They may, however, receive case management services and other types of assistance such as child care and food stamps. Similarly, in Maryland, minor teen parents are not allowed to receive cash assistance directly but must receive grants through a responsible third-party payee. For other states continuing to provide cash assistance to minor teen parent families, the new federal law makes eligibility for these families contingent upon compliance with requirements to attend school regularly and live in an adult-supervised setting. Before federal reform, 15 states had adopted such requirements under waivers. Now, all states providing assistance to teen parent families must adopt such requirements or provide assistance with state funds. According to one Texas official, these requirements will be challenging to implement because the state has limited alternative adult-supervised settings for teen parents who cannot live at home. Although the new federal law allows states to deny TANF assistance to certain “qualified alien” families residing in the United States at the time welfare reform was enacted—August 22, 1996—all states except Alabama indicated they will continue to provide assistance to these families, according to state plans as of November 1997. In addition, although qualified alien families arriving after August 22, 1996, are prohibited from receiving TANF assistance for 5 years under the new federal law, several states, including California and Maryland, indicated they will use state funds to provide aid to these families as well.California officials estimated the state cost for providing assistance for those no longer federally eligible will be minimal, at least for the next 6 months, but they noted that they may experience difficulty in distinguishing between those who are federally eligible and those who are not because the date of entry into the country has not been routinely gathered in the past. People convicted of drug felonies compose the one group to which most states have opted to deny eligibility. Under the new federal law, an individual convicted of a felony involving the possession, use, or distribution of a controlled substance after August 22, 1996, shall not be eligible for assistance, unless the state opts out of this provision by enacting a law specifically addressing this point. However, children in families that include adults who are convicted drug felons continue to be eligible to receive assistance. Nationwide, 37 states have adopted this provision to deny cash assistance to convicted drug felons, although some have narrowed the types of felonies to which this prohibition applies. The 17 states passing legislation to opt out of this provision (including 2 of our 7 case study states: Connecticut and Oregon) have generally made continuing assistance to convicted drug felons contingent upon participation in a drug treatment program. Most states have not changed the grant levels paid to families that were in effect when the federal reform law was passed, thus dispelling for now concerns that federal block grants might result in widespread reductions in grant levels. In its summary of state plans, the Urban Institute reported that only 11 states made adjustments to their grant levels between 1996 and l997: 5 states increased their grant amounts, 4 reduced their grant amounts, and 2 combined TANF and food stamps into a single grant. The remaining states kept the same grant amounts that were in effect in July 1996. Among our seven case study states, California reduced its grant levels by 4.9 percent, while Wisconsin increased its grant levels by over 30 percent for a family of three assigned to the “Community Service Job” component (see table 2.5). Some states have opted to change their grant levels for families only under certain circumstances. For example, 21 states have adopted policies not to increase cash assistance payments to families who have additional children while on assistance, commonly referred to as “family caps.” In addition, under the new federal law, states are allowed to pay cash assistance to families migrating from other states on the basis of the grant levels of the prior state for the first 12 months of assistance. Nationwide, 14 states have adopted such policies, including 2 of our 7 case study states: California and Maryland. However, as of January 1998, California had not yet implemented this policy because of a court challenge. States’ reform programs have also included various efforts to reduce the need for cash assistance through heightened expectations of self-reliance and personal responsibility. In this spirit, states have pursued strategies to divert individuals from applying for cash assistance; enhance child support collections from noncustodial parents; and prevent out-of-wedlock pregnancies, especially among teens. A major new strategy states are using to reduce the need for welfare is “diversion”—that is, families are diverted from receiving monthly cash payments if they can be assisted through other means. Before reform, when families walked through the door of a typical welfare office, the emphasis was on determining their eligibility for assistance and completing their application. Now, in states with diversion programs, the emphasis is on determining what families need to support themselves—perhaps without monthly cash assistance payments. In some cases, a one-time cash payment; support services such as child care, transportation, or health benefits in lieu of cash; or help in finding a job can enable a family to maintain its self-sufficiency without ever going on the welfare rolls. According to TANF plans submitted as of November 1997, 30 states indicated they have diversion programs, including 5 of our 7 case study states: California, Maryland, Oregon, Texas, and Wisconsin. One-time cash payments can help families support themselves in a number of ways. For example, such payments may enable families to get their cars repaired so they can get to work, make overdue rent payments so they can avoid eviction from their homes, or get through a medical emergency that temporarily precludes work. Unlike emergency assistance provided to prevent destitution and homelessness among families in the worst of situations, diversion assistance is provided to families who just need a modest boost to remain off the welfare rolls. All 30 states with diversion programs had provisions for one-time cash payments. Payment amounts may be up to $1,000 or more, depending on the state, and applicants receiving the payments are typically prohibited from receiving TANF cash assistance for a specified time period. The most commonly reported period of time (or equivalency value of assistance) for diversion assistance is a maximum of 3 months, to be negotiated between the applicant and the caseworker depending on immediate need. Among our case study states, California requires its counties to provide diversion payments but allows counties to determine who shall be eligible and how much assistance to provide. In Wisconsin, the payments are in the form of “job access loans” that must be repaid or worked off. In determining whether such payments are appropriate, caseworkers in these states consider such factors as employment history, employment prospects, housing stability, and whether the expense is related to obtaining or maintaining employment or to a discrete financial crisis (as opposed to an ongoing financial need). During 1997, Maryland provided one-time cash diversion payments to 643 families, with fewer than 4 percent of these families returning to receive ongoing monthly cash assistance. The availability of support services such as child care, transportation assistance, and health care benefits—combined with food stamps but not tied to the receipt of monthly cash assistance—also may sometimes enable families to maintain their self-sufficiency without going on the welfare rolls. For example, among our case study states, we found that Maryland would provide child care and medical assistance in lieu of cash for families who already have some prospects of employment. In Oregon, a study of applicants in the Medford branch office between January and June 1997 found that 83 percent of those diverted from monthly cash payments received other assistance, such as food stamps, medical benefits, or child care. Some states have faced barriers in implementing this strategy in the past, however. In the Texas counties we visited, the employment services program had periodically run out of funds for child care assistance for TANF applicants. In California, officials found that most families, when given a choice, opt to receive both cash assistance and services, rather than services without the cash. In Wisconsin, families may opt to receive such services as child care, medical benefits, and job placement assistance as an alternative to enrolling in TANF. Furthermore, those families enrolling in TANF who are determined to be “job-ready” may receive case management services in addition to these other services, but they are not eligible to receive monthly cash payments (see fig. 2.6). Providing families assistance with job search and requiring applicants to engage in job search activities before making them eligible to receive monthly cash payments also may enable applicants to find jobs and be diverted from the welfare rolls. For example, under Texas’ welfare reform program, most applicants are required to attend workforce orientations provided by the employment services agency or local workforce development board providers before they are approved to receive TANF cash payments. Applicants may access services available through the workforce centers to assist them in obtaining employment. Under Maryland’s welfare reform program, applicants are required to participate in up-front job search as a condition of eligibility, and, on the basis of partial data, at least 9 percent of all job placements in fiscal year 1997 were for applicants who never received cash assistance. Under Oregon’s program, most applicants are required to be engaged in job search for 30 days before being fully screened for TANF eligibility. In Wisconsin, applicants judged to be “job-ready” are assigned to the unsubsidized job component and are required to engage in job search activities with no cash assistance (see fig. 2.6 above). If an applicant is unable to find work, caseworkers review the case for barriers to employment and may assign the family to another program component that would include cash assistance. In California, we found that in two of the three counties we visited, applicants were required to participate in such activities, and, if they failed to do so, their applications would not be processed or would be denied, and no cash assistance would be provided. Some potential recipients are also being diverted from pursuing their applications simply by learning of the stronger work and child support enforcement requirements at orientation. Under prior law, program staff were required to inform applicants of program rules, including work requirements under the JOBS program and child support enforcement requirements. However, these requirements often were not imposed immediately on applicants; and once applicants were on the rolls, if they failed to comply, their grants could be reduced but not terminated. HHS data from fiscal year 1992 indicate that about 11 percent of welfare applicants failed to complete their applications after the initial orientation process. Under welfare reform, most states are strengthening their work requirements and child support requirements and imposing these requirements sooner. Preliminary data for a few sites indicate that, once these more rigorous requirements are explained, more families may decide not to pursue their applications than in the past. For example, one Maryland county official estimated that between July 1996 and January 1997, 19 percent of potential recipients withdrew their applications once new program requirements were explained to them. In Oregon, the Medford study found that 22 percent of potential recipients did not pursue applications after program requirements were discussed. And during January 1998 in one Wisconsin county, officials found that 84 percent of the families entering a welfare office decided not to pursue an application for TANF assistance once they learned of the new program rules. States were in the early stages of implementing their diversion strategies at the time of our review, and comprehensive statewide data on the effects of diversion were not yet available. On the basis of preliminary data, however, state officials in both Oregon and Wisconsin estimated that about 40 percent of applicants likely to have qualified for cash assistance were being diverted statewide. In a study of 1,169 applications for cash assistance in Medford, Oregon, during the first 7 months of 1997, 74 percent of potential recipient families were diverted from the rolls, including 52 percent who found employment and 22 percent who did not pursue their applications after learning of program requirements. And as mentioned previously, according to data compiled in Dane County, Wisconsin, during January 1998, 84 percent of potential recipients were diverted from pursuing applications for TANF assistance, and of those enrolled as of February 1998, over 25 percent were receiving TANF services but no cash. While diversion strategies have contributed to declining caseloads, state officials are cautious in declaring success. Use of cash assistance may be reduced with diversion, but the demand for other forms of assistance and services may remain high, and resources for these other services may be limited. Furthermore, limited data exist on the economic stability and well-being of families diverted from receiving ongoing cash assistance. In fiscal year 1996, only about 13 percent of the 7.4 million AFDC child support cases nationwide received at least one child support payment, according to preliminary data from HHS. Recognizing that child support is important to a family’s self-reliance and that both parents should be held financially responsible for their children, states’ welfare offices have taken steps to enhance child support collections on behalf of current and potential recipient families. Among our case study states, we found the following: (1) policies that terminate the entire family’s grant for failure to cooperate with child support enforcement efforts without good cause, (2) policies that allow welfare families to receive more of the support collected on their behalf to encourage greater cooperation, and (3) efforts to work with the courts to require noncustodial parents to participate in work activities to bolster their ability to pay child support. Prior law allowed states to sanction or deny assistance to adults who failed to cooperate with child support enforcement requirements without good cause, but not to deny assistance to the children. The new federal law requires states to reduce a family’s grant amount by at least 25 percent for such failure to cooperate and provides the option for states to deny assistance to the entire family. Before federal reform, nine states had adopted waiver provisions to terminate a family’s entire grant for such failure to cooperate, including two of our seven case study states: Connecticut and Maryland. After reform, a survey conducted by APWA in the summer of 1997 found that the number of states with policies to terminate grants on this basis has grown to 16; however, nationwide data on the number of grants terminated under TANF for failure to cooperate with child support enforcement requirements have not yet been compiled. To encourage cooperation, prior law also required states to give a recipient family the first $50 of current support collected per month on the family’s behalf, with the remainder used to offset the amount of the welfare payment being provided. The new law eliminated this requirement, but states can opt to continue the practice with their own funds.According to TANF plans as of October 1997, 22 states were continuing policies to pass through some portion of any child support payment received. Among our case study states, California, Connecticut, Texas, and Wisconsin were continuing such policies, with Connecticut increasing the amount of the pass-through to $100 and Wisconsin adopting provisions to pass through the entire amount of the child support payment to the custodial parent. Under prior law, participation in the JOBS program was generally limited to AFDC applicants and recipients and did not include noncustodial parents.Before passage of federal reform, however, 23 states had received waivers allowing noncustodial parents to participate in the JOBS program, either on a voluntary basis or as required by the courts, including 5 of our 7 case study states: California, Connecticut, Maryland, Oregon, and Wisconsin. In addition, under the new federal reform law, states are required to report the number of noncustodial parents participating in work and work-related activities under the states’ TANF programs. During our site visits, we found that several local welfare offices had implemented efforts to work more closely with the courts to require noncustodial parents to participate in programs designed to place them in jobs and increase their ability to pay child support. For example, in both Fresno and Santa Clara counties, California, the welfare agencies had initiated such programs. Officials in Santa Clara told us that they not only expected to increase child support collections by placing more noncustodial parents in jobs, but they also believed that such an effort would identify a significant amount of previously unreported income. Similarly, in Wisconsin, one facet of the “Children First” program is to help fathers meet child support obligations by providing them services that are designed to enable them to obtain and retain employment. Because of the strong link between teenage childbearing and welfare receipt, states are trying to reduce the need for welfare through efforts to prevent out-of-wedlock pregnancies, especially among teens. Most states have had such programs under way for more than 25 years as part of their family planning services programs, funded under title X of the Public Health Services Act of 1970. And since 1978, adolescent family planning services have been specified in the statute as one of its essential services. More recently, however, states have begun to focus attention on other strategies to reduce teen pregnancies, such as abstinence education, the enforcement of statutory rape laws, and male involvement programs. Under federal welfare reform, states are required to include in their TANF plans a description of how they intend to establish goals and take action to prevent and reduce the incidence of out-of-wedlock pregnancies, especially among teens, and to conduct programs that provide education and training on the problem of statutory rape. HHS will rank the states annually on the basis of their reductions in out-of-wedlock births among families receiving TANF assistance and will award bonuses to up to five states for reductions in out-of-wedlock births among the general population. In addition, HHS is required to develop a national strategy to prevent out-of-wedlock teen pregnancies and ensure that at least 25 percent of communities in this country have teen pregnancy programs in place. In response to this mandate, in January 1997, HHS issued a national strategy emphasizing the need to prevent teen pregnancies by encouraging teens to postpone sexual involvement, stay in school, and prepare for work. A report to the Congress is due this month. The federal reform law included a provision to enhance states’ efforts to provide sexual abstinence education and authorized $50 million annually for this purpose. States can use this money only for the development of mentoring, counseling, and adult supervision programs that encourage abstinence. All 50 states have applied for these funds with proposals to initiate new programs or expand upon existing efforts that focus on abstinence. As part of their efforts to reduce teen pregnancies, all our case study states proposed increasing their efforts to provide abstinence education aimed at both males and females. For example, officials in both California and Texas told us they plan to use the additional abstinence funds to provide grants to various local communities to administer abstinence and mentoring programs, and for a statewide media campaign on abstinence aimed at males. Both states plan to perform evaluations to determine the impact of these activities. In Wisconsin, officials have also proposed using portions of the state’s abstinence funds for a media campaign, including an evaluation to determine impact. In addition, the Congress has authorized funds for HHS to conduct an evaluation of states’ abstinence programs. All states have statutory rape laws but generally have not rigorously enforced them. In response to studies that show that a substantial number of teen girls are impregnated by older men and that many of these encounters, especially among younger teens, involve coercion, states have begun to increase their enforcement efforts. While some states had initiated programs before enactment of the new federal law, most states are enhancing their efforts in response to the new requirement to expand their teenage pregnancy prevention programs to include men. Under the new federal law, states are required to indicate in their TANF plans how they intend to address the problem of statutory rape, including education and training programs designed to reach law enforcement officials, the education system, and relevant counseling services. The new federal law also recommends that states aggressively enforce statutory rape laws.According to state plans submitted as of August 1997, 29 states provided descriptions of the statutory rape education programs they planned to implement, while other states provided few details. Among our case study states, some—such as California and Connecticut—outlined extensive efforts, while others—such as Oregon and Wisconsin—indicated only that they planned to conduct a program as required. California began strengthening its enforcement of statutory rape laws as a pilot in 1995 and expanded the program statewide in 1996, before federal reform was enacted. To increase the prosecution and conviction of adults who have unlawful intercourse with minors, specialized units were established within the county district attorneys’ offices to investigate and prosecute cases, with the same prosecutor following a specific case all the way through the judicial process. In addition, California’s civil penalties for statutory rape were increased effective January 1, 1997. In response to the new federal requirements, Connecticut’s governor declared that statutory rape laws are to be more aggressively enforced throughout the state and appointed a special prosecutor to enforce the statutory rape laws in Hartford, the city with the highest teen birth rate in the state. In addition, the state welfare department is working with the state health department to develop a media campaign to educate young women about their rights under the statutory rape laws and to educate young men that statutory rape is a crime and will be prosecuted. Many years before federal reform, states had initiated programs involving males, implemented in conjunction with their teen pregnancy prevention efforts. In response to the new law, however, some states’ TANF plans indicate that the states have added to or enhanced their male involvement programs to emphasize abstinence and the prevention of statutory rape. Among our case study states, for example, Connecticut’s state plan directly mandates its service providers who are administering teen pregnancy prevention programs to incorporate a component that comprehensively addresses young males. Also, the state has developed a public awareness program that includes a video and curriculum materials targeted at males and females that will be distributed to middle schools and high schools. Louisiana is incorporating its male involvement program into its effort to reduce the unwed teen pregnancy rate in the state by at least 1 percent during 1998. The program will offer specialized services to preadolescent and adolescent males with an emphasis on manhood development, including counseling, mentoring, and tutoring. The state’s plan also recommends that male leaders from business and academia be solicited as guest speakers and mentors and to act as role models. And in Maryland, the state created a “Responsible Choices” task force, which developed strategies targeting teen boys as well as teen girls, and young men as well as young women, in an effort to reduce the number of nonmarital births through various prevention and abstinence programs. An example of the type of material disseminated in California’s public awareness campaign targeting males is shown in figure 2.7. Finally, some states maintain that more stringent requirements for those already on welfare can serve as a disincentive for future out-of-wedlock births. Some states specifically cited teen parent requirements and family caps as part of their efforts to reduce out-of-wedlock pregnancies. The new federal welfare reform law enacted strict new provisions with respect to teen parents, including providing “no assistance for teenage parents who do not attend high school or other equivalent training program” and “no assistance for teenage parents not living in adult-supervised settings.” According to some state officials with whom we spoke, these provisions can not only deter teens from having their first child, but—perhaps more effectively—can help to encourage teens who are already parents not to have any more children until they finish school and become self-sufficient. As a result, some states explicitly include these policies in the out-of-wedlock initiatives outlined in their TANF plans. For example, California’s strategy to address teen pregnancy includes various intervention programs directed toward pregnant and parenting teens. All these programs predate the passage of federal welfare reform, and most have been in existence for more than 10 years. The Adolescent Family Life program, initiated in 1985 and administered by the Department of Health Services, provides pregnant and parenting teens with an individual case manager who helps link them to education, health, social services, and other assistance. In addition, various teen parent programs have been initiated and are administered by the Department of Education, including the Pregnant Minor program, the School-Age Parent and Infant Development program, the Pregnant and Lactating Students program, and the Gender Equity Teen Parent program. Finally, the Department of Social Services administers the Cal-Learn program, authorized in 1993, for all teen parents eligible for TANF (previously AFDC). Cal-Learn encourages teen parents to graduate from high school or its equivalent by meting out cash bonuses and sanctions on the basis of teens’ school performance. Cal-Learn also provides case management, child care, and transportation services. State officials told us these programs were key to their effort to reduce the number of out-of-wedlock births due to second and subsequent pregnancies among teen parents on welfare. In addition, while the federal law is silent on whether to prohibit grant amount increases for families on assistance when another child is born (commonly referred to as “family cap” provisions), according to TANF plans submitted nationwide as of October 1997, 21 states have adopted some type of family cap provision as part of their effort to discourage subsequent births, including 3 of our 7 case study states: California, Connecticut, and Wisconsin. In Connecticut, a flat payment of $50 per month is given for each additional child born to a family receiving assistance. In addition, while Maryland officials do not consider their policy to be a family cap, the state’s plan calls for increasing the amount of the grant only for the specific needs of an additional child born to a family on assistance and for paying this assistance directly to the vendor of the goods or services rather than to the caregiver. Under the new federal welfare reform law, HHS is required to rank the states annually on the basis of their proportion of out-of-wedlock births among families receiving TANF assistance and the net change from the previous year, and to review the programs in the five states ranking highest and lowest. In addition, the law provides for bonuses of $20 million for five states demonstrating a net decrease in out-of-wedlock births among the general population for the most recent 2-year period without increasing the state’s abortion rate. In March 1998, HHS issued proposed regulations outlining the specific data to be used in awarding these bonuses. At the time of our review, all our case study states expressed an interest in these bonuses; however, some states were uncertain whether the data they collect on abortions would be adequate to allow them to qualify. At the same time that states are requiring more welfare recipients to participate in work activities, they are modifying their programs to better support recipients in their work-related efforts. States have expanded the roles of welfare workers and reorganized local offices to better support employment. Further, states are using the flexibility provided by the new law, along with additional budgetary resources, to help welfare applicants and recipients address problems that interfere with work, including the lack of transportation and child care, and mental and physical health problems. Expanding partnerships with other organizations—especially employers—is yet another way that states are attempting to support recipients’ work efforts. Finally, some states have restructured program administration by giving local administrative entities greater flexibility to tailor programs to the needs of their recipients. States are expanding the roles of welfare workers and reorganizing local welfare offices in an attempt to change the “culture” of welfare offices to reflect the greater emphasis on work. Training workers to perform their expanded roles has been among the most challenging and widespread implementation issues reported by states. Recognizing that the success of their programs depends in large part on how well welfare workers implement reform policies, the states we visited have generally expanded workers’ roles to meet new program objectives. This expansion of roles is an attempt to shift the emphasis of staff from determining eligibility and issuing benefits to helping applicants and recipients obtain work and become more self-sufficient. State and local officials cited a range of new responsibilities for welfare workers, including communicating to recipients their responsibility to become employed, motivating recipients to seek work, exploring the potential for diverting applicants from the need for monthly cash assistance, and collecting more information about applicants and recipients to determine what services would facilitate their becoming more self-sufficient. As expressed by a worker in Texas, staff interactions with recipients have shifted away from a pattern of “Ms. Jones, has anything changed? No? Okay, see you in 6 months,” to a much greater focus on helping recipients obtain work. Training staff to perform their new roles has been one of the major challenges of welfare reform. Members of welfare advocacy groups in several states we visited voiced concerns about what they viewed as inadequate training of welfare staff in states’ new program policies and cited examples of staff providing inaccurate information about these policies to applicants and recipients. State and local officials highlighted two key aspects of the challenge of training staff to perform their new roles: the need to change the perspective of staff and to help them cope with workload pressures. Many of the workers whose roles have been expanded are current or former eligibility workers, who were originally trained to apply complex rules to make accurate determinations of welfare eligibility and benefit levels. In some instances, workers have encountered difficulties in making the transition to broader responsibilities that involve learning more about the lives of welfare recipients and making decisions about the most appropriate course of action for these recipients. For example, the director of one Wisconsin office told us that workers were uncomfortable with the considerable amount of discretion they had in their new roles that required them to use their judgment to determine the appropriate work component in which to place recipients. The director said that he has attempted to help staff make the transition to their broader roles by working to keep them focused on client empowerment and employment. Officials in Portland, Oregon, told us that the process of shifting workers’ perspectives to focus more on helping families become self-sufficient had taken several years. Many factors helped facilitate this process, including making the expanded role a higher job classification to provide salary increases and providing training based on needs as identified by the workers themselves, according to Portland officials. Welfare workers and managers cited a number of factors that contributed, to varying degrees, to the workload pressures that impinged upon workers’ abilities to perform their new responsibilities. In addition to traditional problems, such as large caseloads and substantial amounts of time required to determine eligibility and benefit levels and process sanctions, workers cited the extra time now required for initial meetings with applicants, the additional time required to keep abreast of policy changes, and the limited time for training. For example, officials in the two Maryland counties we visited reported that much of welfare workers’ time was consumed with processing paperwork to sanction noncompliant clients, which limited the time available to work with other clients. Workers in New Orleans told us that the amount of time required to interview applicants had tripled under the state’s welfare reform program, in large part because there is now much more information to be communicated to applicants. A worker in Wisconsin told us that much more time is now needed for initial meetings with applicants—from 2 to 5 hours—to learn more about them in order to make appropriate decisions. Some states have taken steps to reduce such workload pressures. For example, Oregon has streamlined the paperwork for determining eligibility to allow staff more time for case management. Another way in which some states and localities have attempted to enhance their ability to serve welfare recipients is by reorganizing local welfare offices to consolidate service delivery. In some instances, this has taken the form of moving various welfare-related staff from various sites to one site. For example, at the time of our review, Fresno County, California, was in the process of bringing together eligibility workers and employment specialists at various sites to facilitate information sharing among staff and help recipients obtain employment more quickly. Fresno County officials told us that having these staff at the same location would also enable eligibility workers and employment specialists to hold joint orientations for applicants that focus on diverting applicants from monthly cash assistance. Service consolidation is also occurring on a larger scale as welfare offices are being integrated into the workforce development system. As part of its effort to encourage states to consolidate workforce development services, the U.S. Department of Labor (DOL) has given 46 states grants to implement “One-Stop Career Centers,” as of March 1998. One-Stop Career Centers are intended to transform the fragmented array of employment and training programs into an integrated service delivery system for job seekers and employers. For example, Wisconsin and Texas have efforts under way to shift from welfare offices to one-stop centers as the service delivery mechanism for their welfare reform programs. These centers will provide access to a range of employment-related services, such as labor market information, job listings and referrals to employers, job search assistance, career counseling and job training, and case management. Serving welfare recipients through one-stop centers is a way of reinforcing the message that recipients are responsible for seeking employment and that staff at the centers are expected to facilitate recipients’ efforts toward this objective. In addition, by making services available to all job-seekers, one-stop centers may help remove some of the “welfare stigma” previously encountered when services were provided out of a welfare office, according to state officials. Recent declines in welfare caseloads, combined with the TANF block grant formula and the state maintenance-of-effort requirement in the new welfare law, have given most states more budgetary resources for their welfare programs than they would have had under prior program funding rules. Further, the new welfare law gave states flexibility to design their welfare programs and to allocate financial resources in substantially different ways than were allowed under prior law. The states we reviewed were using some of these additional resources in combination with increased flexibility in spending rules to enhance support services for applicants, recipients, and those leaving welfare for work. The law also provided federal funding for child care subsidies, and all seven states we reviewed had increased spending on child care for low-income families during fiscal year 1997. The welfare legislation dramatically changed the way the federal government and states fund programs and services for needy families with children. Previously, the federal government and the states shared the costs of AFDC, Emergency Assistance, the JOBS program, AFDC/JOBS Child Care, Transitional Child Care, and At-Risk Child Care. Unlimited federal funds were available for all of these programs except JOBS and At-Risk Child Care, for which federal funds were capped. As shown in figure 3.1, TANF block grants to the states replaced the federal portion of the funding for the AFDC, JOBS, and Emergency Assistance programs. Each state’s TANF block grant allocation was determined by the federal expenditures for these three programs in a base year from 1992 to 1995. The law also required that states continue to spend state funds on low-income needy families at an amount at least equal to 80 percent of their fiscal year 1994 spending for all six of the programs. This maintenance-of-effort requirement is reduced to 75 percent for states meeting their required work participation rates. The welfare reform law also provides states with federal funding to help meet the child care needs of low-income families. As shown in figure 3.1, federal child care funding through the Child Care and Development Fund (CCDF) was based on prior federal spending for the three now repealed child care programs as well as the existing Child Care and Development Block Grant. Like TANF, the amount of federal funds available for child care is now capped. Total program costs for AFDC each year were largely determined by the number of individuals receiving assistance, and states received federal funds for a portion of total program costs. Under TANF, the amount of federal funding is no longer determined by the number of individuals receiving assistance. Instead, states receive a fixed amount of federal funds each year and are required to contribute at least a minimum level of state funds, the amount of which is based on past spending levels. Since TANF block grants to the states were based on expenditures for historically large welfare caseloads, the recent decline in caseloads has resulted in most states having more total budgetary resources available for their welfare programs than they would have had under prior funding rules. In order to estimate the additional resources available for states’ programs under TANF, we constructed estimates of the 50 states’ baseline program budgets under prior funding requirements and compared these with the states’ estimated budgetary resources under TANF. For the United States as a whole, we estimated that if all states had received a full year’s TANF allotment in 1997 and had maintained state funding at 80 percent of historic levels, they would have had about $4.7 billion more than we estimate they would have spent in 1997 under prior methods of financing. On average, given the actual caseload size in 1997, we estimated that states would have had about 25 percent more budgetary resources under TANF than they would have had under AFDC funding rules. Table 3.1 shows these additional federal and state budgetary resources for the seven states reviewed, compared with estimates of expenditures these states would have made in 1997 under prior program funding. Among these states, the estimated increase in resources ranges from 1 percent in Connecticut to 65 percent in Wisconsin. While current circumstances provide states with additional budgetary resources, there is no guarantee that this situation will continue into the future. Even if, for example, economic conditions weaken and more families need assistance, the TANF block grant amount will not increase, and it will be up to each state to decide what level of benefits to provide and to whom, and to provide additional resources as it determines necessary. In addition to changing the way the federal government funds assistance for needy families with children, the new welfare law gives states flexibility to spend program resources in ways that are substantially different from those available under prior law. The law gives states authority to use TANF funds in ways that were allowed under the earlier programs and, unless subject to a prohibition, “in any manner that is reasonably calculated to accomplish the purpose of the TANF program” for families with children. As discussed earlier, states do face many limits on how they use federal TANF funds—notably time limits. And federal law restricts expenditures for medical services and assistance to certain individuals and families, including certain aliens and teen parents. States are, however, liberated from many other detailed rules about the types of poor families that can be served and the types and amounts of assistance to be provided. As a result, states have more freedom to tailor services to families’ unique situations, individual needs, and local environments. Further, states can expand eligibility to provide TANF services to a broader range of families than had been served under AFDC. This means that supportive services, which in the past had been linked to eligibility for cash assistance, can now be provided in the absence of a welfare check, further freeing states to tailor services to individual need. States have even more flexibility in how they spend their maintenance-of-effort funds. For example, these funds are not subject to time limits and thus can be used to provide services indefinitely and to certain legal aliens for whom federal funds cannot be used. The seven states we visited are using some of their additional budgetary resources to provide services to help families address barriers to employment, including lack of child care and lack of transportation, as well as more complex mental and physical health problems. States are also continuing to provide services to families that have left the welfare rolls as a result of employment, including, in some cases, providing case management services to help ensure that families can deal with problems that might put parents’ jobs at risk. In addition, some states are providing services to low-income working families that are not receiving cash assistance and that, under previous law, might not have been eligible for such assistance. Helping welfare applicants and recipients obtain reliable transportation to work or work-related activities continues to be a challenge in many areas. Many poor families do not own cars, and even those with cars sometimes do not have reliable sources of transportation. Under AFDC eligibility rules, recipients were limited to owning vehicles valued at no more than $1,500.In addition, public transportation is sometimes limited or unavailable, especially for those in certain rural areas and in some urban areas where many of the available jobs are located in outlying suburban areas. In a study of welfare recipients in Connecticut, focus group participants throughout the state pointed to limited bus routes and hours of availability, as well as to the expense of transportation, as obstacles to obtaining employment. Officials in a rural county in Maryland told us that many of the better-paying jobs available are for night-shift work, when public transportation is unavailable. In urban areas such as Baltimore and Milwaukee, most of the available jobs are in the surrounding suburbs. As states seek to expand the percentages of their caseloads participating in work activities, they are using a variety of approaches to enhance transportation services for recipients, including providing funding for rural transportation systems, enlisting volunteers to provide transportation for recipients, expanding bus routes, and providing funds for vehicle repairs. Oregon used some of its savings from caseload reductions to resume operation of a rural transportation system and reimburse volunteer drivers for transporting welfare recipients. Hartford, Connecticut, expanded bus routes on the basis of gaps in the public transportation system identified by a study that compared the geographic locations of welfare recipients with the job sites they were attempting to reach. Baltimore, Maryland, used funds from the Bridges-to-Work program, which is administered by the U.S. Department of Housing and Urban Development (HUD), to provide transportation services for recipients and thereby help them gain access to jobs in areas outside the city. A survey of states conducted by APWA found that some states provided one-time, lump-sum funds for specific needs, such as car repair, to applicants as a diversion strategy. As states require larger percentages of their welfare caseloads to participate in work-related activities—including some recipients who were previously exempted because of a determination of physical or mental disability—and as more recipients leave welfare for employment, states are concerned that they will be left with a more difficult-to-serve population. Finding ways to involve these recipients in work activities was one of the most challenging and widespread implementation issues cited in the states we visited. Studies of these recipients have found that, in addition to being less likely to have prior work experience and more likely to have lower literacy levels, they tend to have multiple problems that make participation in work-related activities more difficult. These problems include physical and mental health issues such as depression, anxiety, personality disorders, substance abuse, and domestic violence. To move these recipients toward self-sufficiency, states have sought to enhance their capacity to provide mental and physical health services. Oregon officials estimate that about 50 percent of the state’s welfare caseload requires drug or alcohol treatment services. Oregon introduced mental health and drug and alcohol services by integrating them into its life-skills training module for welfare recipients and by placing counselors on-site at welfare offices. The city of Baltimore, Maryland, added a social service component to its welfare program, relocating social service workers to welfare offices to deal primarily with hard-to-serve recipients and refer them to appropriate services to help remove their barriers to employment. For example, social service workers have arranged services for victims of domestic violence. Under California’s previous JOBS program, recipients who required mental health or drug and alcohol services were deferred from participation. However, California’s welfare reform program eliminated these grounds for deferral. The California Senate Welfare Reform Conference Committee recently estimated that 15 percent of welfare cases in the state require mental health treatment, 25 percent need treatment for substance abuse, and 20 percent need help to deal with domestic violence. California’s welfare reform legislation provided for the creation of separate funding streams and programs for substance abuse treatment services and mental health services for welfare recipients. In recognition of the importance of child care subsidies and medical assistance to low-income families, under prior law families leaving welfare because of employment were eligible for a year of transitional child care and medical assistance. Under TANF, 29 states plan to extend transitional child care beyond 12 months, and 12 states plan to do the same with transitional Medicaid, according to a study of states’ TANF plans by the National Governors’ Association. Some states do not set a specific limit on the length of time a child care subsidy can be received but instead base eligibility primarily on income criteria. Previous experience with welfare-to-work programs has shown that placing recipients in jobs is sometimes not as challenging as helping them remain employed so that they do not cycle back onto welfare. Leaving welfare is often more of a process than a one-time event, especially for families with multiple barriers to employment. Recognizing these challenges, some states have sought to maintain a relationship with former welfare recipients through continued case management in order to provide job retention, reemployment, and advancement assistance services, which are referred to as postemployment services. Thirty-five states are offering some form of case management services to individuals who have left TANF because of employment, according to the APWA survey of states, including four of our seven case study states. In many cases, the services are provided for up to 90 days after the family exits TANF. For example, in Oregon, case managers help to identify the supports needed to increase workers’ employability, such as skills development and training. Connecticut developed a mentoring program in which experienced employees are matched with newly hired welfare clients to help them make the transition to the workplace environment. The state managed to overcome some early difficulties in recruiting mentors, according to Connecticut officials. Under California’s welfare reform legislation, counties have the option of continuing to provide case management and supportive services for up to 12 months for former participants who become employed. While states can use TANF resources for child care, one of the largest sources of federal funds for child care subsidies for low-income families is the Child Care and Development Fund. The welfare reform law combined four federal child care programs with different target populations into one program with a single set of eligibility criteria and requirements, now called the Child Care and Development Fund (CCDF). The new CCDF provides federal funds to states for child care subsidies for families who are working or preparing for work and who have incomes of up to 85 percent of a state’s median income. The CCDF provided states with about $3 billion in federal funds in fiscal year 1997. In a separate study of child care under the CCDF, we reported that all of the seven states reviewed used federal and state funding under the CCDF to increase overall expenditures in their fiscal year 1997 child care subsidy programs, with increases over fiscal year 1996 expenditures ranging from about 2 percent in Maryland to 62 percent in Louisiana. Six of the seven states also reported an increase in the number of children served under their child care subsidy programs. All seven states expected to meet the fiscal year 1997 child care needs of families required to work under welfare reform as well as those of families moving off welfare. However, the states did note difficulties with locating a sufficient supply of certain types of care—infant care, nonstandard hour care, care for sick children, and care for children with special needs. States were also uncertain that supply would be adequate in the longer term and had varied initiatives under way to expand supply. Some states are taking advantage of the new consolidated program to develop a more integrated child care system to support the work efforts of welfare and nonwelfare families. For example, Wisconsin and Oregon’s child care programs, which are primarily based on income eligibility, are integrated programs that enable all potentially eligible families to access program services under the same procedures, criteria, and requirements. Such programs are important to ensure that families who have never been on welfare are treated the same with regard to child care subsidies as those who have been and that families can move from welfare to employment without fear of losing eligibility for subsidized child care. Under the JOBS program, it was common practice for states and localities to contract with other organizations to provide education, training, and support services to welfare recipients. As states and localities now strive to move more recipients into work activities and reduce welfare dependence, they are placing greater emphasis on expanding their partnerships, especially with employers. For example, California requires that counties, in producing their local welfare plans, describe their partnerships with the private sector—including employers and employer associations—and indicate how these partnerships will identify jobs for recipients. Yet even in the strong national economy that currently exists, persuading employers to hire welfare recipients can sometimes be challenging. Moreover, some areas have weaker economies than others. The states and localities we visited are using a range of approaches to expand their partnerships with employers and other organizations. Approaches that states and localities are using to strengthen linkages with employers include enlisting top state officials to solicit employers, giving employers a central role in designing local welfare-to-work programs, assessing the effectiveness of different strategies for obtaining employer involvement, and offering incentives to businesses to promote economic development. In some instances, the impetus for partnering with employers has come from top state government officials. For example, Connecticut kicked off its welfare reform program with a large-scale direct-mail campaign to more than 35,000 businesses in the state that included a letter from the governor encouraging them to send in job orders for welfare recipients. In addition, the state commissioners of insurance and banking initiated partnerships of insurance companies, banks, the state Department of Social Services, and other organizations to provide welfare recipients classroom training, internships, and job opportunities in the banking and insurance industries. Some states, such as Wisconsin and Texas, have sought to institutionalize the involvement of employers by giving them a central role in designing local welfare-to-work programs. For example, local welfare agencies in Wisconsin are required to establish Community Steering Committees, which are responsible for developing strong ties to local employers, creating and identifying job opportunities, and performing other roles that will benefit program participants. These committees must include representatives of local business interests. At the time of our site visits, welfare agencies in Milwaukee were just beginning to form their committees, but Fond du Lac County had already established its committee two years earlier under previous welfare reforms. The director of the welfare agency in Fond du Lac County told us that, while the committee encountered some early difficulties in determining its role and developing an action plan, the committee has been extremely beneficial for welfare recipients in developing employment opportunities because its members have much greater influence with area employers than welfare officials ever could. Another approach has been to assess the effectiveness of different strategies for obtaining employer involvement. In Connecticut, the Department of Social Services hired the Connecticut Business and Industry Association to determine what incentives and services would encourage small businesses to hire welfare recipients. The Association conducted pilot projects in three regions of the state and tested employer incentives, such as training subsidies and tax credits, and services, such as prescreening recipients’ education and skills; peer mentoring; and hiring through the use of temporary agencies, chambers of commerce, and business consortiums. The lack of job growth in some locations has stimulated efforts to promote economic development. For example, the welfare reform program in the city of Baltimore faces a situation of low job growth. Maryland’s Department of Human Resources, in conjunction with a university research partner, has projected the number of jobs that will be created in “target industries”—those in which recipients of cash assistance are most likely to obtain employment—in each jurisdiction statewide. These projections were then compared with projections of the number of adults that would have to engage in work activities in order for the state to achieve mandated federal participation rates. This analysis showed strikingly different labor market conditions in the two localities we visited. Washington County is projected to have three times as many new jobs in target industries as work activity positions needed. In contrast, Baltimore is projected to have only about 4 percent of the number of newly created jobs in target industries that are needed for work activity positions (see table 3.2). There have been various efforts to promote economic development in Baltimore. For example, the federal government has provided funds to designate sections of the city as “empowerment zones” and thereby attempt to attract and retain businesses by providing tax incentives and regulatory relief. As part of his effort to generate new jobs in the city, the Mayor of Baltimore lobbied successfully for the passage of legislation that would provide businesses incentives to clean up and redevelop commercial and industrial sites impaired through past activities. While partnering with employers has been a major focus, states and localities have also sought to develop and expand partnerships with other organizations to help address the needs of welfare recipients. For example, in August 1997, Maryland funded seven proposals for demonstration projects to be administered by private, nonprofit organizations. These projects seek to help welfare recipients obtain and retain employment but differ considerably in planned approaches and populations targeted. One of the largest of these projects, located in Prince Georges County, enlists multiple program partners and community resources in an effort to serve teenage mothers, victims of domestic violence, long-term recipients, substance abusers, and other hard-to-serve cases. In California, Santa Clara County is working with community-based organizations to establish services that will help welfare recipients retain jobs. For example, the county has established a 24-hour hot line that recipients can call for support when they encounter job-related problems, such as obtaining child care. In addition, the Silicon Valley Council of Nonprofits received a grant to work on strengthening the capacity of the nonprofit sector to participate in the county’s welfare reform efforts and other objectives. In some instances, states have encountered obstacles in their efforts to expand community involvement. For example, Maryland encountered resistance from some religious organizations when it solicited their involvement in administering noncash assistance to families whose cash assistance had been terminated because of noncompliance with program requirements. These organizations cited various concerns, such as that the state was attempting to pass off to religious organizations its obligations to poor families, that administering such assistance would constitute for some religious organizations a conflict of interest by making them agents of the state, and that religious organizations could be exposed to liability. Although state law regarding the provision of noncash assistance was subsequently modified, religious organizations have played little role in administering noncash assistance in Maryland, according to members of advocacy groups in the state. States and localities have also found opportunities to benefit welfare recipients through partnerships with federal agencies. For example, the Weed and Seed program in Hartford, Connecticut, is a joint effort of HUD, the U.S. Department of Justice, and the state Department of Social Services that places social service programs directly in the community being served—in this case a public housing development. About a third of the program’s caseload consists of TANF recipients. The program focuses on eliminating crime and drug use in the housing development and changing the way people live. The program targets young people and seeks to address their barriers to employment by providing services such as life-skills training, substance abuse treatment, and English language instruction. In Baltimore, the city Department of Social Services is working with HUD to address the issue of how welfare recipients in the city can use their federal housing vouchers to move to a neighboring county and pursue job opportunities. While housing vouchers are transferable to other locations, officials from the two agencies are working to develop strategies to publicize and facilitate such transfers. Just as the 1996 welfare reform law provided states greater flexibility to design and administer their assistance programs for needy families, some states have in turn given local administrative entities greater flexibility to design programs tailored to the needs of their recipients. Devolution of responsibility is a distinguishing feature of welfare reform in four of the states we examined: California, Maryland, Texas, and Wisconsin. In Wisconsin, this devolution was accompanied by a privatization initiative that resulted in private organizations taking over administration of the TANF program in some localities. A central issue these states faced in implementing these changes in program administration was how to maintain local accountability. They are addressing this issue through such methods as providing financial incentives for local administrative entities and establishing performance measures that focus more on desired outcomes. The devolution of responsibility in California, Maryland, Texas, and Wisconsin is reflected primarily in expanded local flexibility to tailor welfare-to-work programs to local needs and available resources. However, eligibility standards and cash assistance levels are still set at the state level in each of these states. Counties in California have broad discretion under the state’s welfare reform law in designing welfare-to-work programs. For example, while counties are required to provide an adequate range of activities to ensure that participants have access to needed activities and services to assist them in seeking unsubsidized employment, counties can determine the activities they will provide. Moreover, counties can establish their own policies for how they will work with families transitioning off assistance because of employment or time limits. Counties receive block grants from the state to administer the program and can carry forward any unspent funds for up to 2 years, whereas unspent funds previously were reallocated among counties. Despite such expansions in flexibility, state officials told us that local discretion remains somewhat constrained because the state welfare reform law did not reduce local administrative burdens relating to eligibility determination and verification requirements. One of the most important elements of Maryland’s strategy to move families from dependence to independence is a focus on local solutions to local problems, according to state officials. Maryland designed its welfare reform program to provide local departments of social services with considerable flexibility in designing their work programs. Local departments can determine what assessment tools to use, require recipients to participate in work activities more than the minimum required number of hours, establish their own policies regarding immediate job search requirements for applicants, and establish their own preferred strategies for moving recipients to employment within the “work first” model. The state gives local departments funding allocations for child care, employment and training services, Welfare Avoidance Grants, Emergency Assistance, and program administration but not for cash assistance grants, which are handled by the state. Local departments have the flexibility to use some or all of their Emergency Assistance funds for welfare diversion programs. As part of its effort to strengthen the linkage between employers and welfare recipients and achieve greater responsiveness to local needs and resources, Texas transferred responsibility for its welfare-to-work program to 28 local workforce development boards. The broad mission of these boards is to design strategies to build an efficient and effective local workforce development system. With regard to the state’s welfare reform program, the boards are responsible for designing the welfare-to-work program, contracting for program services, and overseeing the provision of these services. Workers from the state Department of Human Services continue to determine eligibility for cash assistance. The state’s philosophy acknowledges that the needs of business must drive the design of a workforce development system. Local workforce development boards must have a majority of representation from the private sector, including business owners, chief executives or chief operating officers, or other private sector executives. In addition, the presiding officers of the boards are to be selected from members representing the private sector. Texas also had originally planned to solicit public and private sector bids to design and implement its Texas Integrated Eligibility Services (TIES) project. Under TIES, Texas wanted to consolidate eligibility determination for all health and human services and workforce programs into one overall system that contractors could manage. When Texas officials queried federal officials about the possibility of using private contractors to interview and determine applicant eligibility for TANF, Medicaid, and Food Stamp program benefits, however, they received letters from HHS that questioned the advisability of proceeding with the state’s plans. One HHS letter stated that Medicaid’s authorizing legislation and the Food Stamp Act preclude private contractors from evaluating applicant information and certifying eligibility. Texas officials told us that because of HHS’ interpretation of the law and other concerns that the state legislature had with the TIES project, the legislature subsequently limited the bid solicitation to developing new social service eligibility determination processes and the information management systems to support them. In contrast to Texas, Wisconsin did privatize eligibility determination for TANF in some parts of the state. As part of Wisconsin’s plan to establish a competitive environment for the administration of its welfare reform program, county and tribal departments of social or human services were required to meet certain performance standards—including reducing caseload size by 25 percent in a year—to ensure that they would be selected to operate the program. The state issued a request for proposals for the competitive selection of program operators in counties that did not meet the standards or declined to run the program. As a result, private nonprofit or for-profit organizations were selected to administer the TANF program in nine counties, including Milwaukee County. Milwaukee County was divided into six regions, because of the state’s view that smaller entities have historically performed better under the state’s welfare waiver programs. Local welfare agencies receive fixed funding allocations from the state and are responsible for determining program eligibility and administering work and support services. However, eligibility for Medicaid and food stamps continues to be determined by county government officials. Wisconsin state officials told us that their strategy is to inform local welfare agencies of key program objectives but tell them very little about how to accomplish them. State officials envision that fully institutionalizing this state and local relationship may take a couple of years. While the welfare agencies in Milwaukee were in the early stages of developing their welfare-to-work strategies at the time of our site visit, they had already begun to reflect some differences in emphasis. For example, one agency was emphasizing financial planning and helping participants become homeowners, another stressed entrepreneurial opportunities, and a third was focusing on providing community service jobs using its own organizational resources. As states shift responsibilities to localities and privatize the administration of welfare programs, they confront the challenge of how to maintain local accountability. This challenge is heightened because states now operate their programs with fixed federal block grants and are subject to various federal financial penalties and rewards based on their performance. Similar to the federal effort to promote state accountability under TANF, California, Maryland, Texas, and Wisconsin are working to promote local accountability in ways such as creating financial incentives for local administrative entities and establishing performance measures that focus more on desired outcomes. States have established financial rewards and penalties to encourage local administrative entities to achieve desired program objectives. For example, Maryland’s state law provides that 45 percent of any savings from caseload reductions or other reductions in the total amount of cash assistance payments is to be allocated to local departments on the basis of their achieved levels of cost savings. California’s law stipulates that each county will receive 75 percent of the state share of its savings resulting from the following outcomes: (1) recipients exiting the welfare program because of employment that lasted at least 6 months, (2) increased earnings by recipients resulting from employment, and (3) diversion of applicants from the welfare program for 6 months in addition to the number of months equivalent to state diversion payments. On the other hand, any federal penalties for failure to meet federally mandated participation rates are to be shared equally by the state of California and those counties failing to meet the rates. In Wisconsin, local welfare agencies get to keep a certain percentage of any “profit” they generate but also are at risk of having to put up some of their own funds if their fixed block grants from the state are insufficient. If their surplus is less than or equal to 7 percent of their total expense allocation from the state, they receive the entire surplus as profit. Any surplus in excess of 7 percent is to be distributed as follows: 10 percent to the local agency for unrestricted use, 45 percent to the state, and 45 percent to the local agency for reinvestment in the community for services to low-income people. State contracts with local welfare agencies also have a $5,000 “failure to serve” penalty for failure to provide specified services. With respect to performance measures, Wisconsin’s written contracts with local welfare agencies specify performance requirements for various process measures. For example, a Financial and Employment Planner must meet the applicant within 5 business days of the date the application is signed. The contracts also note that the state will develop outcome measures for future contracts, including measures related to the delivery of all required services within total expense allocations, percentages of applicants and recipients moved to unsubsidized employment, recidivism, quality of job placements as measured by wage rates and availability of employer-provided benefits, and administrative cost per case. Texas established employment entrance rates and earnings gains as the key performance measures for local workforce development boards. A large decrease in the size of the national welfare caseload indicates a significant reduction in families’ dependence on cash assistance. In addition, states’ progress in restructuring their welfare programs is reflected by increased levels of participation in work activities, including unsubsidized employment, among both families receiving and leaving welfare. Nonetheless, little is known about the impacts states’ programs are having on the well-being of children and families. Some states, however, have efforts under way to track families that have left welfare, and the welfare reform law includes various provisions that are likely to generate national information about program impacts in the future. As states have reformed their welfare programs first under waivers and then under TANF, welfare caseloads nationwide have declined to an extent unprecedented since World War II. In addition, data from the states we visited show that these states generally have increased their job placement rates and the percentages of their caseloads participating in work and work-related activities, as compared with their earlier JOBS programs. After growing in the early 1990s and peaking in 1994, the national welfare caseload decreased by 30 percent between January 1994 and September 1997. Moreover, the caseload has been decreasing by a larger percentage each year, and most of the reduction has occurred since January 1996 (see fig. 4.1). Between January 1996 and September 1997, caseloads declined in all states and territories except Hawaii and Guam, with reductions ranging from 1 percent in Nebraska to 77 percent in Idaho. Twenty-five states had caseload reductions of 25 percent or more (see app. IV). While economic growth and state welfare reforms have been cited as key factors to explain nationwide caseload declines, there is no consensus about the extent to which each factor has contributed to these declines. Among our case study states, Oregon and Wisconsin, which were early implementers of welfare reform, have seen the largest caseload declines from January 1996 to September 1997—42 percent and 52 percent, respectively. Officials in these two states said that, along with favorable economic conditions, implementing their welfare reform programs—which included instituting “work first,” diversions, and full-family sanctions; emphasizing full-time jobs and exiting welfare; and expanding child care assistance—has contributed to their large caseload declines. National data are not yet available on the extent to which caseload declines have occurred as a result of increased employment and income for families, as opposed to other factors, such as full-family sanctions or fewer families applying for assistance. “Work first” policies and more stringent work requirements may lead some families to obtain jobs and leave welfare more quickly than otherwise; these policies might also discourage other families from applying for assistance. Time limits and stronger sanctions may reduce the length of time some families receive assistance, by either motivating them to obtain jobs and leave welfare or leading to the involuntary termination of their cases. Changes in eligibility rules and earnings limits can also affect the size of caseloads. For example, in September 1997, Wisconsin began implementing its Wisconsin Works program, under which clients judged to be job-ready are not eligible to receive cash assistance. The state’s cash assistance caseload dropped by 55 percent from September 1997 to February 1998. State policies on earnings limits can also affect the extent to which caseloads decrease when recipients obtain employment. In California, where a three-person family can earn up to $1,551 a month and still remain eligible for cash assistance, 23 percent of families that obtained employment left welfare in state fiscal year 1997. In contrast, a three-person family that earned more than $616 a month in Oregon would no longer be eligible for cash assistance, and 70 percent of families there that obtained employment left welfare during the same period. TANF caseloads can also decline because of administrative changes. For example, in 1997, Wisconsin removed about 5,000 child-only cases from its TANF program and transferred them to a kinship care program administered by local child welfare agencies under the supervision of the state Department of Health and Family Services. These were cases in which the custodial adults were not the legally responsible parents and cash assistance was paid only for the children. In contrast, Oregon has retained the child-only cases in its TANF program, and they constituted 28 percent of the state’s TANF caseload in 1997. Five of our seven case study states reported significant increases in the rates at which people in their programs found jobs, as compared with their rates under their JOBS programs, according to our estimates. As shown in the last column of table 4.1, California, Louisiana, and Maryland more than doubled their job placement rates from 1995 to 1997, and Oregon and Wisconsin increased their rates by more than 70 percent. Texas reported a slight decrease in its job placement rate, which a state official attributed to a delay in state appropriations for the program that left many staff positions vacant for much of fiscal year 1997. Although comparable data for Connecticut were not available, data on case closures suggest progress with regard to job placements: the number of families in Connecticut that exited the welfare rolls because of increased income rose by 32 percent from September 1996 to September 1997. Officials in Oregon attributed the state’s success with job placements in large part to the maturity of its program. In fiscal year 1997, the number of job placements in Oregon nearly equaled the number of cases remaining on cash assistance at the end of the year. State officials said that most of the cases that remained on cash assistance either had significant barriers to employment, such as drug, alcohol, and mental health problems, or were child-only cases not subject to work requirements. Economic conditions and unemployment rates varied among states and counties within states, and in some cases state officials reported progress in job placements even in areas of high unemployment. For example, despite having the highest statewide unemployment of our case study states—7.2 percent as of June 1997—Louisiana reported one of the biggest increases in job placement rates since implementing the work component of its welfare reform program in May 1997. The state achieved an annualized job placement rate of 300 per thousand cases from May to September 1997—more than triple its job placement rate for all of fiscal year 1996—and 77 percent of recipients placed in jobs over this 5-month period exited welfare. However, Louisiana officials said they were having difficulty with job placements in rural areas, where jobs are particularly scarce. In Oregon, the rural eastern counties, where unemployment rates ranged from 7 to 22 percent, had a higher overall job placement rate than the rest of the state in fiscal year 1997. State officials cited several factors that contributed to the performance of these counties, including that they worked closely with local employers and assisted clients with out-of-area job searches and relocation costs, had a strong sense of community responsibility, and had service jobs despite the high overall unemployment rate. Available data for our case study states indicate that the states generally have increased the percentages of their caseloads participating in work and work-related activities, compared with their performance under their prior JOBS programs. In addition, while all seven states indicated that they would meet their required TANF all-families participation rates for fiscal year 1997, two reported that they would not meet their TANF participation rates for two-parent families by wide margins. Using TANF definitions of participation, analysis of data on levels of participation under TANF and JOBS indicates that the case study states generally have increased the percentages of their caseloads participating in work and work-related activities. To facilitate comparison with fiscal year 1997, we developed estimates of what states’ participation rates would have been for fiscal years 1994, 1995, and 1996 using TANF criteria. These estimates contain some degree of imprecision because we were unable to adjust for all relevant factors. A comparison of columns 2 through 5 in table 4.2 shows that estimated all-families participation rates generally have risen over time and, in most instances, have at least doubled since 1994. The welfare reform law requires states to have adult recipients in 25 percent of their TANF families participating in work activities in fiscal year 1997, rising to 30 percent in fiscal year 1998 and to 50 percent by fiscal year 2002. The required participation rate for each state is reduced by the percentage reduction in the state’s caseload from the base year of fiscal year 1995 unless the reduction is the result of changes in eligibility criteria. So the effective required rate for most states in fiscal year 1998 is less than the nominal rate of 30 percent. While HHS has not issued data on states’ required or achieved TANF participation rates for federal fiscal year 1997, each of our case study states expected to exceed its required all-families participation rate for this period, according to its own calculations (see cols. 5 and 6 of table 4.2). Even though the estimated achieved participation rates in California, Louisiana, and Texas for 1997 were less than 25 percent, these states expected to meet their required rates because of credits for caseload reductions. We estimate that most of the seven states will have substantially lower required participation rates for fiscal year 1998 because of credits for large decreases in caseloads between fiscal years 1995 and 1997 (see cols. 6 and 7 of table 4.2). In contrast to meeting the TANF participation rate for all families, meeting the required rate for two-parent families has presented some states with greater difficulty. States are required to have adult recipients in 75 percent of their two-parent families participating in work activities in fiscal year 1997, rising to 90 percent in fiscal year 1999. Of the six states that provided data on their estimated two-parent participation rates for fiscal year 1997, Connecticut, Louisiana, Oregon, and Wisconsin reported they would meet their estimated required rates, though Louisiana would only meet the rate because of a sharply reduced two-parent caseload (see cols. 5 and 6 of table 4.3). However, California and Texas, which accounted for 96 percent of the two-parent cases in our study states, indicated that they had fallen short of meeting their required rates by wide margins.Caseworkers noted that two-parent cases often have mental health and substance abuse problems that make participation in job placement programs difficult. For fiscal year 1998, three of the seven states have dramatically lower required two-parent participation rates because of large declines in their two-parent caseloads. Since the two-parent caseloads in Louisiana, Oregon, and Wisconsin have decreased sharply since fiscal year 1995—the decreases range from 67 to 81 percent—these states’ estimated required two-parent participation rates for fiscal year 1998 range from 0 to 8 percent (see cols. 4 and 7 of table 4.3). State officials cited various reasons for the decline in two-parent caseloads, including an improving economy resulting in more two-parent families finding work; stronger work requirements; and the redefinition of two-parent families to exclude those with a disabled parent, as allowed under the Balanced Budget Act of 1997. On the other hand, Connecticut and Texas, which have expanded their eligibility rules since fiscal year 1995, have experienced an increase in their two-parent caseloads and therefore may not receive any reduction in the 75-percent required participation rate for fiscal year 1998. TANF participation rates and their associated financial penalties were designed to serve as an incentive for states to increase the percentages of their caseloads participating in work activities. Nevertheless, some state officials we interviewed expressed concerns about the law’s focus on participation rates and said that emphasizing outcome measures instead would better stimulate program effectiveness. These officials maintained that the law’s provisions regarding countable activities and required number of hours were too restrictive and that tracking and reporting these elements to enable participation rates to be calculated was burdensome and distracted staff from helping recipients find jobs and become self-sufficient. The welfare reform law tasks HHS with working cooperatively with the states to determine whether outcome measures can be developed as an alternative to TANF participation rates to evaluate states’ success in moving individuals out of the welfare system through employment. The recent sharp decreases in welfare caseloads raise questions about the broader impacts of states’ welfare reform programs on children and families. For example, to what extent do families who have left welfare return to welfare, how economically stable are they, and where do they stand on various measures of well-being? Moreover, how do children fare after losing assistance because their parents did not comply with new program requirements? Little information is available to begin answering such important questions. However, some states have efforts under way to collect data on such topics, and the welfare law also includes various provisions to help ensure that national information on program impacts is collected. Some of our case study states have efforts under way to collect data on families that leave welfare. For example, Maryland is tracking a random sample of over 2,000 families that exited welfare during the first 12 months of the state’s welfare reform program (Oct. 1996 to Sept. 1997).Maryland has issued two reports with interim findings. Oregon has been tracking welfare recidivism to provide data for one of the state’s performance measures: the percentage of families that remain off welfare for 18 months after case closure because of employment. California law mandates an evaluation of the direct and indirect effects of the state’s welfare reform program, including effects related to employment, earnings, and self-sufficiency as well as those pertaining to child well-being, such as entries into foster care, at-risk births, school achievement, child abuse reports, and rates of child poverty. Data on welfare recidivism indicate that some families are returning to welfare, but it is too early to determine whether recidivism patterns differ from those under AFDC. In tracking families that left welfare because of job placements, Oregon found that 35 percent of families had returned to cash assistance sometime within 18 months but that only 10 percent were receiving cash assistance 18 months after case closure. According to Oregon officials, it sometimes takes two or three job placements before recipients are able to hold a job and remain off welfare. This is reflected by findings from an evaluation of Oregon’s Post-Employment Services Demonstration, which found that after the first year of the demonstration (1994-95), 61 percent of participants were no longer at their first job because they had left for a better job, quit without other job prospects, or been fired or laid off. The 1998 Maryland study found that 19 percent of all families who left welfare returned to the rolls within 3 months and 23 percent returned within 12 months, which suggests that families who return tend to do so fairly quickly. The study also found that families whose cases were recorded as closed because they started work or because their incomes exceeded eligibility limits had significantly lower 3-month recidivism rates: 3 percent and 11 percent, respectively. Little is known about the well-being of children and families after they leave states’ welfare reform programs. The 1998 Maryland study found that of the cases that closed during the first 9 months of the program, 51 percent of adults reported earnings in the quarter after they left welfare. The average earnings of these adults were about twice as high as Maryland’s maximum cash assistance payment for a family of three. Among our case study states that tracked the average wage for job placements in 1997, wages ranged from $5.60 to $6.60 an hour. A low-wage job combined with the earned income tax credit, food stamps, and subsidized child care may lift a family above the federal poverty line, but families may continue to be hard-pressed, especially in areas with high housing costs and in states that limit transitional child care and medical assistance to 1 year. Prior research on the AFDC program has indicated that recipients on average experienced little rise in wages over time.However, Oregon officials have found some evidence in the state’s welfare reform program that those placed in jobs who have remained employed have experienced a growth in wages. Oregon matched job placements with data on employer-reported wages between 1993 and 1996 and found that those who remained employed 3 years later had a wage growth averaging 14 percent per year. Early results from the 1998 Maryland study indicate that case closures have not been associated with significant increases in the size of foster care caseloads. Of the 3,467 children in families that left welfare in the first 11 months of the program, only 15 children (0.4 percent) were placed in foster care after their families left welfare. Approximately 3 percent of the 3,467 children had been in foster care at some point before their families left welfare. The welfare law tasked HHS with collecting various information that will help policymakers and researchers evaluate the impacts of TANF. For example, HHS is required to develop a formula to reward “high performing” states—those that achieve the goals of the law. While the formula for fiscal years 1999 to 2003 has not been finalized, HHS issued guidance to states in March 1998 on the performance measures that will be used for fiscal year 1998. In addition to job placements, these measures include job retention and wage progression, which would provide information on the economic stability of families after they are placed in jobs. The welfare law also directs HHS to conduct research on the benefits, effects, and costs of the state programs funded under TANF to determine effects on welfare dependency, illegitimacy, and other areas. HHS is also required to evaluate innovative programs designed to decrease welfare dependency and increase child well-being. A key element in HHS’ pursuit of this research mandate is its continued funding of evaluations of state waiver programs, which assess the impacts of provisions such as time-limited assistance and work requirements. Furthermore, beginning in 1999, HHS is required to submit annual reports to the Congress on the circumstances of families reaching their time limits and families headed by teen parents. The welfare law also appropriated $10 million per year beginning in 1996 for 7 years for the Bureau of the Census to continue to collect data on a national sample of families surveyed in the 1992 and 1993 panels of the Survey of Income and Program Participation to obtain information on the impacts of TANF. The law directs Census to pay particular attention to the issues of out-of-wedlock births, welfare dependence, how long people remain on welfare, causes of welfare recidivism, and status of children. Census has subsequently developed an expanded survey, called the Survey of Program Dynamics, to collect information on these topics. States are transforming the nation’s welfare system into a work-focused, temporary assistance program for needy families. They are modifying their policies to require or encourage welfare recipients and potential recipients to work; rely on alternatives to cash assistance when appropriate; use welfare as temporary, rather than long-term, assistance; cooperate with child support enforcement requirements; and not become pregnant outside of marriage. At the same time, states are modifying their programs to better support welfare recipients in meeting these expectations, such as by expanding the role of welfare workers to include job counseling, transforming local welfare offices into job centers, enhancing support services, expanding efforts to establish partnerships with employers and other organizations, and giving local administrative entities more flexibility to tailor programs to local needs. The confluence of a strong national economy and the availability to most states of greater budgetary resources under TANF than they would have received under prior law has created an optimal time for states to reform their welfare programs. Increases in job placement rates and levels of participation in work activities are early encouraging signs of progress toward some of the objectives of the federal welfare reform law. However, any comprehensive assessment of states’ welfare reform programs must also take into account what happens over the longer term with respect to some critical issues, such as the following. States are helping many families leave or avoid welfare by providing a range of services to support their work efforts, including Medicaid and child care assistance. However, these families’ prospects for achieving some measure of economic stability remain an important issue, in light of prior research showing that welfare recipients, who often find jobs with low wages, generally have experienced little rise in wages over time after they began working. To the extent that these families’ earnings do not increase over time and their employment-based fringe benefits are limited, their ability to maintain employment and support themselves may depend to a great extent on the availability of income supports, such as subsidized medical and child care and the earned income tax credit. Federal and state policies and programs for assisting low-income working families are likely to play a critical role in the future success of welfare reform. As more recipients leave welfare for work, the characteristics of states’ caseloads can be expected to change. Data from states that have implemented early reforms and experienced large caseload reductions indicate that many of the remaining recipients face multiple barriers to participation in work activities, such as mental health and substance abuse problems and domestic violence. As a result, even under continued favorable economic conditions, states’ initial successes with moving applicants and recipients into employment will probably slow over time. In response, states will need to adjust their approaches to better enable families with a range of problems to take steps toward becoming more self-supporting. Although states can exempt up to 20 percent of TANF families from the federal time limit on assistance on the basis of hardship, even with more intensive supports, there may be some recipients who cannot be placed in the workforce because of the severity of their problems. In addition, there may be some adults whose lack of compliance with program requirements, for whatever reasons, puts their children at risk of a range of negative outcomes. Given time limits on assistance and pressure on states to meet rising federally mandated work participation rates, monitoring how these recipients and their children fare in states’ welfare reform programs will be especially important. As we have seen, some states have given localities greater flexibility to design programs tailored to the needs of their recipients or privatized some functions of their welfare programs, such as eligibility determination. By encouraging experimentation, or in some cases, competition, these initiatives may hold some promise of developing more effective and efficient ways of serving needy families. However, these initiatives also heighten the challenges states face in ensuring local accountability and avoiding unintended negative results. Therefore, it is essential to pay attention to how well states are performing such tasks as specifying clear program goals and developing effective systems to monitor local performance. A comprehensive perspective on states’ TANF programs cannot be obtained until it is known how they perform in both a strong economy and a weak one. Yet little is known about how a weak economy would affect states’ programs. For example, some adults who had previously left welfare for work could become unemployed. While they could be eligible for unemployment insurance, some could once again apply for cash assistance after their unemployment insurance ran out. Furthermore, if caseloads did increase significantly in a worsening economy, it is unclear what budgetary responses states would take in an environment of fixed federal TANF funding. They would have a range of options, such as using any reserve funds that they might have set aside; appropriating additional state funds; accessing TANF loan or contingency funds; or reducing program funding by cutting cash assistance levels, restricting eligibility, or reducing expenditures on services. Since these options are subject to varying constraints and could have very different effects on poor families, it will be important to pay close attention to how states respond in the event of an economic downturn. We obtained comments on a draft of this report from HHS and the seven case study states. HHS stated that the report provides a useful and comprehensive description of how states are implementing various reforms under TANF and provided two general comments. First, HHS noted that there were some inconsistencies between the information that it had regarding policies and activities in the seven states and the information included in the draft report but acknowledged that the states were reviewing the draft report. In their comments, the states generally agreed with the report’s findings and provided additional technical information about their welfare reform programs, which we incorporated in the report as appropriate. Second, HHS suggested that the report should indicate that, while states were permitted to make their own reasonable interpretations of the 1996 welfare reform law prior to the publication of final rules for the TANF program, some of the state policy interpretations reflected in the report may not be sustained when HHS issues final rules. In response, we added this information to the report. HHS also provided additional technical information, which we incorporated in the report as appropriate.

Summary: Pursuant to a congressional request, GAO reviewed states' implementation of the Temporary Assistance for Needy Families (TANF) block grant, focusing on: (1) states' efforts to require and encourage welfare recipients and potential recipients to assume greater personal responsibility; (2) how states are providing services to support the objectives of TANF; and (3) early reported data to assess states' progress in achieving program objectives. GAO noted that: (1) consistent with the thrust of the federal welfare reform law, states are moving away from a welfare system focused on entitlement to assistance to one that emphasizes finding employment as quickly as possible and becoming more self-sufficient; (2) in the seven states GAO visited, welfare offices are generally being transformed into job placement centers; (3) adults with mental and physical impairments and those caring for small children are less likely than before to be exempt from participating in work activities; (4) in the states GAO reviewed, the average proportion of adult recipients required to participate in work activities increased; (5) to reinforce the expectation that welfare is temporary, states have established time limits on receiving cash assistance and have modified various policies to help make welfare recipients financially better off if they obtain jobs than if they do not; (6) states also have devised strategies to reduce the need for monthly cash assistance; (7) states also have modified their programs to better support welfare recipients in becoming more self-sufficient; (8) in their efforts to change the culture of welfare offices, states are expanding welfare workers' roles by shifting their priorities from determining eligibility and cash assistance levels to helping recipients obtain work and become more self-sufficient; (9) at the same time, states plan to use some of the additional budgetary resources available under the welfare reform law to enhance support services; (10) moreover, some states have given local administrative entities greater flexibility to design welfare-to-work programs tailored to the needs of their recipients; (11) implementing all these changes has not been quick or easy: among the most challenging and widespread implementation issues reported by the states have been training staff to perform their new roles and finding ways to involve recipients with multiple barriers to participation in work activities; (12) it is too early to draw definitive conclusions about the success of states' programs because it is uncertain how states' programs will perform as more of the most job-ready recipients leave welfare and states face increasing proportions of recipients with multiple problems, or if the current strong economy undergoes a major downturn; (13) moreover, little is known about program impacts; and (14) future monitoring of states' programs will need to focus on areas such as job retention and earnings progression, children's welfare, and family stability.