Enactment of the TANF block grant in 1996 significantly changed federal welfare policy, as it both limited HHS’s authority to regulate welfare programs and gave states more flexibility in designing and funding related programs. The TANF block grant is a $16.5 billion per year fixed federal funding stream to states, which is coupled with a maintenance-of-effort (MOE) provision that requires states to maintain a significant portion of their historic financial commitment to their welfare programs. TANF gave states flexibility in setting various welfare program aspects, such as cash assistance benefit levels and eligibility requirements, as well as in spending TANF funds. For example, when the number of families receiving cash assistance benefits declined after welfare reform, states were able to use available funds to enhance spending for noncash services, such as child care, work supports, and a range of other supports for low-income families. Due to these flexibilities, TANF programs differ substantially by state. Further, because of differences in state administration of the program, some state TANF programs also differ by local jurisdiction. In creating the TANF block grant, the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) set out to increase the flexibility of states in operating a program designed for the following four purposes: 1. providing assistance so that children could be cared for in their own homes or in the homes of relatives; 2. ending families’ dependence on government benefits by promoting job preparation, work, and marriage; 3. preventing and reducing the incidence of out-of-wedlock pregnancies; 4. encouraging the formation and maintenance of two-parent families. In line with the second purpose, PRWORA (1) established work participation rates as a requirement for states, which HHS uses to measure performance; (2) named 12 categories of work activities to be counted for the purpose of the measure; and (3) defined the average number of weekly hours that each family receiving TANF cash assistance must be engaged in an activity to count as participating. If TANF recipients engage in other activities provided or permitted under the state’s TANF program, then those activities do not count toward meeting the federal work participation requirements. In addition, TANF recipients who engage in work activities for less than the minimum required number of hours each week generally do not count as being engaged in work for purposes of the requirements. PRWORA also excluded some families from these work requirements, such as those in which children alone receive the cash assistance benefits. PRWORA established separate annual work participation rates for all families and all two-parent families receiving TANF cash assistance in each state. Although the required rates increased in the immediate years following TANF implementation, when they reached their maximums, the rates were set at 50 percent for all TANF families and 90 percent for two- parent TANF families. In short, these rate requirements mean that states are held accountable for ensuring that generally at least 50 percent of all families receiving TANF cash assistance participate in one or more of the 12 work activities for an average of 30 hours per week. However, the act also allowed states to annually apply for a reduction to the required work participation rates through the caseload reduction credit. This credit was annually calculated by determining the change in caseload—or, the average number of families receiving cash assistance— in the state between fiscal year 1995 and the fiscal year preceding the current one. If a state’s caseload has decreased, the credit allows the state to decrease its required work participation rate by the equivalent percentage. For example, if a state’s caseload decreased by approximately 20 percent between fiscal year 1995 and the fiscal year preceding the current one, the state would receive a caseload reduction credit equal to 20 percent, which would result in the state having an adjusted work participation rate requirement of 30 percent for the current year. Because TANF caseloads significantly declined following TANF implementation, this credit enabled many states with fewer than 50 percent of their TANF families sufficiently engaged in countable work activities to still meet the federal work participation rates. (See fig. 1.) In addition, states could modify the calculation of their work participation rates through funding decisions. Specifically, because PRWORA’s work participation requirements only applied to families receiving cash assistance funded with TANF block grant dollars, states could opt to use their MOE dollars to fund cash assistance for families less likely to meet their individual work participation requirements. By creating these MOE- funded separate state programs (SSP), states were able to remove selected families from the work participation rate calculation. (See fig. 2.) PRWORA established penalties for states that did not meet their required work participation rates and gave HHS the authority to make determinations regarding these penalties. When a state does not meet its required level of work participation, HHS will send the state a penalty notice. The state can accept the penalty, which reduces its annual block grant, or it can try to avoid the penalty. To do so, a state can opt to provide reasonable cause as to why it did not meet the work participation rate or submit a corrective compliance plan that will correct the violation and demonstrate how the state will comply with work participation requirements. In addition, if the state’s failure to meet the work participation rate is due to circumstances that caused the state to become a “needy state” or extraordinary circumstances such as a natural disaster, HHS has the discretion to reduce a state’s penalty. In 2006, DRA reauthorized the TANF block grant through fiscal year 2010 and made several modifications that were generally expected to strengthen TANF work requirements intended to help more families’ attain self-sufficiency, and improve the reliability of work participation data and program integrity. Specifically, DRA directed HHS to issue regulations by June 30, 2006, defining the 12 work activities, methods for reporting and verifying hours of work participation, and the circumstances under which a parent who resides with a child receiving assistance should be included in work participation rates. DRA also required (1) states to establish and maintain procedures consistent with the new regulations and (2) HHS to review these procedures to ensure they will provide an accurate measure of work participation. Further, DRA mandated that families receiving cash assistance through SSPs be included in the calculation of work participation rates, and it changed the caseload reduction credit by moving the base year for measuring caseload declines from 1995 to 2005. In addition to the work requirement changes, DRA also added a provision allowing states to count a broader range of their own expenditures toward the TANF MOE requirement. Previously, states could claim as MOE their expenditures related to the four purposes of TANF that provided benefits or services only to financially needy families with children. However, DRA expanded states’ ability to count as MOE other expenditures on TANF purposes 3 and 4—the prevention and reduction of out-of-wedlock pregnancies and the formation and maintenance of two-parent families. Specifically, the act allowed states to count their total expenditures toward these purposes, regardless of the composition and financial need of the families benefiting from these expenditures. HHS issued interim final regulations in response to DRA on June 29, 2006, which were generally applicable beginning in fiscal year 2007. These regulations addressed the changes related to work rules required by DRA, such as issuing federal definitions of the 12 work activities, and also required specific state actions. For example, in response to the DRA requirement that states establish procedures for counting, verifying, and reporting work participation, HHS required states to submit an interim Work Verification Plan to the agency by September 30, 2006, and have a final approved version in place by September 30, 2007. The interim regulations also addressed the DRA change to MOE spending on pro- family activities by clarifying that states could claim as MOE all spending reasonably calculated to address TANF purposes 3 and 4. HHS issued the final DRA-related regulations on February 5, 2008, which were effective beginning in fiscal year 2009. Although the final regulations made some modifications to the work rules included in the interim final regulations, HHS officials reported that these modifications were generally minor. For example, HHS clarified that some activities not directly addressed in the interim final regulations fit within specific work activity definitions. In contrast, the final regulations made a significant change to the interim regulations related to allowable MOE expenditures on pro- family activities. Specifically, under the final regulations, states can count toward MOE their total spending on specific pro-family activities listed in the healthy marriage promotion and responsible fatherhood section of DRA, rather than their total spending on all pro-family activities under TANF purposes 3 and 4. For the specified activities alone, a state can count all of its expenditures toward MOE regardless of the family composition and financial need of the people benefiting from these activities. In response to the economic recession that began in 2007, the Recovery Act made several additional changes to TANF, which generally did not affect the federal work rule changes required by DRA. Specifically, the Recovery Act created the $5 billion Emergency Contingency Fund for state TANF programs, which states can qualify for based on increases in the number of families receiving cash assistance or in TANF and state MOE expenditures for short-term, nonrecurrent benefits and subsidized employment. States can apply for funds each quarter through the end of fiscal year 2010, and they are eligible to have 80 percent of their expenditure increases reimbursed from the fund. In total, each state is eligible for a portion of the fund equal to up to half of its annual basic TANF block grant, as long as dollars remain.