Because the existing welfare system has not been successful in preventing long-term dependency, many states are using federally approved waivers of statutory requirements to implement their own welfare reform initiatives. Concurrently, efforts are under way at the federal level to reform the nation’s welfare system. Some states already are experimenting with provisions similar to those included in recent federal welfare reform proposals, such as time limits on benefit receipt, work requirements, and a prohibition on payment of cash assistance for additional children born to families already receiving welfare—the family cap provision. Aid to Families With Dependent Children (AFDC) provides cash benefits to economically needy families with children who lack support from one or both of their parents because of death, absence, incapacity, or unemployment. In fiscal year 1995, the average monthly number of AFDC recipients was about 13.6 million—4.4 million adults and 9.2 million children—and payments to recipients totalled nearly $22 billion. AFDC is an entitlement program funded with federal and state dollars, with the federal share determined by a matching formula related to each state’s per capita income. The U.S. Department of Health and Human Services (HHS) has federal oversight responsibility for the program. Each state administers and determines many aspects of its AFDC program within federal guidelines, including payment amounts, eligibility requirements, and treatment of income and resources. In recent years, policymakers and analysts have expressed growing discontent with the welfare system, many claiming that the system fosters dependency. There have been no limits on the length of time families may receive benefits, except for recent experiments in some states that have received federal approval to test time limits. One study estimates that about 35 percent of those who ever receive AFDC will eventually receive benefits for a total of 5 years or more, when all moves on and off welfare are considered. In addition, some policymakers and analysts believe that the welfare system should no longer provide cash benefits for additional children born to AFDC mothers. With the Family Support Act of 1988, the Congress created the Job Opportunities and Basic Skills Training (JOBS) program to transform AFDC into a transitional program geared toward helping parents become employed and avoid long-term welfare dependence. Under JOBS, states are to (1) provide a broad range of education, training, and employment-related activities; (2) increase the number of AFDC clients participating in these activities; (3) target resources to the hard-to-serve; and (4) provide support services, including child care and transportation. The Family Support Act created minimum requirements for the percentages of AFDC clients participating in JOBS that states must meet to receive their full share of federal funding. The minimum participation requirements rose from 7 percent of nonexempt AFDC clients in fiscal year 1991 to 20 percent in fiscal year 1995. While most states have met the minimum participation requirements, the number of AFDC clients participating in JOBS remains limited. In fiscal year 1994, about 13 percent of the 4.6 million adults receiving AFDC were active in JOBS activities each month. Our previous work has shown that most JOBS programs nationwide do not have a strong employment focus. About one-half of the county JOBS administrators nationwide that we surveyed stated that they do not work enough with employers to find jobs for participants. In addition, although most of the program officials reported that less than one-half of their job-ready participants had become employed, the officials reported little use of subsidized employment or work-experience programs, options available under JOBS. Various factors were identified that contribute to the lack of a strong employment focus in some JOBS programs. For example, the performance measurement system for JOBS holds states responsible for the number and type of AFDC clients participating in JOBS activities but not for the number who get jobs or earn their way off AFDC. In addition, county JOBS administrators cited insufficient staff as a major obstacle to implementing or expanding the use of tools such as subsidized employment and work-experience programs. JOBS administrators also reported that labor market conditions such as high unemployment and low job growth hindered their efforts to get jobs for clients. Under section 1115 of the Social Security Act, HHS is authorized to grant states waivers of certain statutory requirements governing the AFDC program. This authority is intended to give states the flexibility to test innovations designed to help their programs better meet the objectives of the act. The conditions of the waivers require that states have an independent organization rigorously evaluate the outcomes of their welfare reform projects and that these projects be cost neutral to the federal government. HHS assesses cost neutrality over the life of a project, rather than on a year-by-year basis, because many projects involve making up-front investments with the expectation of achieving savings in later years. Between 1992 and 1995, 36 states received approval from HHS to implement one or more projects. These projects include a wide variety of provisions, such as those designed to encourage work, increase parents’ responsibility for meeting their children’s needs, and restrict eligibility for benefits. Thirty-one of these states were granted federal waivers to experiment with one or more of the three provisions discussed in this report: time limits, work requirements, and family caps. As shown in table 1.1, 23 states received waivers to experiment with time limits, 24 states for work requirements, and 13 states for family caps, according to HHS. In recent years, several proposals have been introduced in the Congress to reform welfare. President Clinton’s proposal, which was introduced in 1994 but not brought to a vote in the Congress, would have time-limited cash welfare benefits and provided subsidized jobs to clients unable to find work on their own. After the congressional elections in 1994, the 104th Congress developed its own welfare reform proposal. The Personal Responsibility and Work Opportunity Act of 1995 (H.R. 4), the compromise legislation worked out by House and Senate conferees, was passed by both houses of the Congress in December 1995. The President vetoed the legislation in January 1996, citing, among other reasons, that it did not provide enough funding for child care. H.R. 4 would have ended the individual entitlement to benefits and the payment of federal matching funds to states. Instead, each state would have received a block grant to provide temporary assistance for needy families. These block grants would have provided states fixed annual federal allocations and increased their flexibility in operating their programs. H.R. 4 would have limited families’ lifetime receipt of benefits to 60 months (whether or not consecutive), but allowed states to provide hardship exceptions in limited cases. In addition, the legislation would have required parents to engage in work after 24 months of receiving assistance (whether or not consecutive) or earlier, if a state determined that the parent was ready to engage in work. Furthermore, the legislation’s family cap provision would have banned the provision of cash assistance for additional children born to families already receiving welfare, unless states decided not to adopt such a provision. Negotiations for a compromise agreement on welfare reform have continued among congressional leaders, the President, and state governors. In May 1996, the Personal Responsibility and Work Opportunity Act of 1996, a revised version of H.R. 4, was introduced in the Congress. As introduced, the proposal includes time-limited benefit and work requirement provisions similar to those in H.R. 4, but not a family cap provision. The administration’s revised welfare reform proposal, the Work First and Personal Responsibility Act of 1996, was introduced in the Congress in June 1996. The Chairman of the House Subcommittee on Human Resources, Committee on Ways and Means, asked us to review states’ early experiences with implementing welfare reforms under federal waivers, believing that this information would be useful to other states as they prepare to face the challenges of welfare reform. Specifically, the Chairman requested that we examine the approaches that states took and issues they encountered in implementing three key provisions: time limits, work requirements, and family caps. Because the states that we reviewed made relatively few management or service delivery changes to implement their family cap provisions, this report focuses principally on approaches states used and issues they encountered in implementing time limits and work requirements. To accomplish our objectives, we reviewed the implementation experiences of Florida, Indiana, New Jersey, Virginia, and Wisconsin. The criteria we used to select states included obtaining a range in the length of time states’ approved waivers had been in effect, selecting some states whose waivers included all three provisions, and avoiding duplication of existing studies. We met with state program officials, county program administrators, and caseworkers in Florida, Indiana, Virginia, and Wisconsin using a semistructured interview guide that we developed. Our site visits included interviews with officials in the following counties: Alachua and Escambia (Florida); Marion, Scott, and Vigo (Indiana); Fauquier and Culpeper (Virginia); and Pierce and Fond du Lac (Wisconsin). We contacted New Jersey state officials by telephone to obtain information on the state’s implementation experiences. In addition, we examined the terms and conditions of the states’ approved waivers and other written materials about their welfare reform programs. This report does not examine the outcomes of the states’ welfare reform programs, such as cost implications and effects on caseloads, because sufficient data are not yet available. We conducted our work between July 1995 and May 1996 in accordance with generally accepted government auditing standards. The five states we reviewed made major changes to the design of their welfare programs through waivers of federal statutory requirements. These changes include provisions that require some clients to work, set time limits on cash assistance, and prohibit the payment of cash benefits for additional children born to families already receiving AFDC. The five states’ welfare reform programs vary in such features as the length of time they have been under way, their geographic scope of implementation, and the content of their provisions.