The TANF program represented a significant departure from Aid to Families with Dependent Children (AFDC), the federal welfare program it replaced—in program goals, funding structure, and program requirements. Under the TANF block grant program, created by PRWORA and reauthorized in 2006, states receive federal funds to design and operate their own welfare programs within federal guidelines. In addition to providing cash benefits to eligible families, as AFDC did, the TANF program, instead, focuses on, among other things, ending the dependence of needy parents on government benefits by promoting job preparation, work, and marriage. HHS administers the TANF program, which provides states with up to about $16.5 billion each year in TANF block grant funds. To qualify to receive its portion of the available TANF funds, each state must contribute a specified level of its own funds, which is referred to as the state’s maintenance of effort (MOE). In addition to providing cash assistance, states may use these TANF and MOE funds to finance a wide range of benefits, services, activities, or programs, such as child care and other activities that further TANF program goals. In addition to the new goals and funding structure of the TANF program, PRWORA established more stringent work requirements; credits to states for reducing caseloads; time limits; and restrictions on immigrant receipt of assistance. The act also established that eligible families were no longer entitled to receive cash assistance from states, as they had been under AFDC. States must involve a minimum percentage of their adult TANF and MOE cash assistance recipients in work activities for a required number of hours each week. Under PRWORA, states are allowed to reduce their required work participation rates by earning credit for reducing their cash assistance caseloads. All states have received such caseload reduction credits, thereby reducing the work participation rate they must meet. The caseload reduction credit also introduced an incentive for states to contain or reduce the number of families receiving cash assistance, since states that fail to meet the target work participation rates face financial penalties. To emphasize the temporary nature of assistance, states must restrict most families to a lifetime limit of 60 months of federally funded TANF cash assistance, although states can implement shorter time limits. A few states have chosen to terminate benefits only for the adults in the family unit; otherwise benefits are terminated for the entire family after the lifetime limit expires, although some states may continue serving families using state funds. PRWORA also limited the eligibility of immigrants for means-tested benefits— including TANF—to those who have been in the country legally for 5 years. While federal law generally limits TANF cash welfare to low- income families with either a child under the age of 18 (or under the age of 19 if the child is in school) or a pregnant woman, states set their own eligibility limits and benefit levels for cash recipients. In designing and implementing their TANF programs, states focused more than ever before on helping welfare recipients and other low-income parents find jobs. Many states implemented work-focused programs that stressed moving parents quickly into jobs and structured the benefits to allow more parents to combine welfare and work. States use TANF and MOE funds to provide child care subsidies, education and training, and other services, for TANF cash recipients as well as other low-income families. In addition, TANF funds are also transferred to the Child Care and Development Fund (CCDF) to help fund subsidized child care and to the Social Services Block Grant (SSBG) program to help fund child welfare agencies. According to 2006 figures, TANF spending on support services and transfers exceeded spending on cash assistance. In fiscal year 2006, states spent approximately $10 billion on cash assistance and $11 billion on support services and transfers. States also imposed financial consequences, or sanctions, on families that did not comply with TANF work or other requirements as well as implemented strategies to divert families from cash assistance. States have implemented partial sanctions, in which benefits are reduced, and full- family sanctions, in which benefits are ended for the entire family for a period of time or until compliance if an adult failed to meet TANF program requirements. Often states increase the severity of the sanction based on the number of times or the amount of time the individual is noncompliant. As of July 2008, nearly all states had policies ending cash benefits for the whole family or closing cases as their most severe sanction for an adult’s noncompliance with work requirements. Many states have also implemented programs or strategies intended to divert families from cash assistance. One diversion strategy was to provide one-time, non-recurring benefits instead of monthly TANF cash assistance to families who face temporary hardships. Families who receive certain non-recurring short- term benefits are not required to participate in federally mandated work activities, and their receipt of these benefits does not count towards the family’s 60-month lifetime limit. Cash assistance may be funded by the TANF block grant, MOE funds, or state-only funds, and the source of the money determines which TANF requirements apply to the recipient. With certain exceptions, recipients of cash assistance funded by the TANF block grant are subject to work participation requirements, the 60-month lifetime limit on receipt of cash assistance, and immigration restrictions. Some states provide cash assistance through SSP programs using MOE funds. Recipients of cash assistance funded through SSPs are subject to TANF work participation requirements, but not the time limits or immigrant restrictions. SSP recipients began to be counted in the calculation of the TANF work participation rate beginning in fiscal year 2007 as a result of TANF reauthorization. In response to the changes made in reauthorization, some states chose to provide cash assistance funded with the state’s own funds that are not counted towards the MOE requirement. Recipients of assistance from these solely state-funded programs are not subject to TANF requirements. To help states in the event of an economic downturn, PRWORA created a TANF contingency fund of up to $2 billion. To qualify for access to the contingency fund, states must meet a test of economic need. In addition, states may draw upon unused portions of their own federal TANF grants from previous years—often referred to as carry-over or reserve funds. Most recently, the American Recovery and Reinvestment Act of 2009 (ARRA) made an additional $5 billion available to states for fiscal years 2009 and 2010 through a new Emergency Contingency Fund. This fund reimburses states for 80 percent of their increased expenditures for cash assistance, provided there is also an increase in caseload; non-recurrent short term benefits; or subsidized employment in a quarter in fiscal year 2009 or fiscal year 2010, as compared with the comparable quarter in fiscal year 2007 or fiscal year 2008. Poverty is measured in the United States using the federal poverty threshold, which is calculated annually by the U.S. Census Bureau. The threshold reflects estimates of the amount of money individuals and families of various sizes need to purchase goods and services deemed minimally adequate based on 1960s living standards, and is adjusted each year using the consumer price index. Persons or families having income below this amount are, for statistical purposes, considered to be living in poverty. The poverty threshold varies by family size and composition but does not vary by geographic location. Extreme or deep poverty is defined as income below 50 percent of the federal poverty threshold for a given family. For example, for a single parent with two children the poverty threshold in 2008 was $17,346; for that family type, the extreme poverty threshold was $8,673. Over the years, the official Census measure of poverty has been criticized for, among other things, not fully capturing the value of public supports and benefits, such as SNAP or the Earned Income Tax Credit (EITC), and for not considering health care and work-related costs. In 1995, a National Academy of Sciences panel recommended that changes be made to the threshold to count noncash benefits, tax credits, and taxes; deduct certain expenses from income such as child care and transportation; and adjust income levels according to an area’s cost of living. In recent years, such noncash benefits and supports have comprised larger portions of the assistance package for families with low incomes. In response to these issues, several pieces of legislation have been proposed to update the federal poverty measure, although none has been passed as of the date of this report. Poverty in the United States is also measured through the poverty guidelines, which are published annually by HHS and are used by some federal programs in determining the income eligibility of individuals and families for need-based assistance. The poverty guidelines are a simplified version of the Census poverty thresholds. Although the guidelines reflect variations in family size, the poverty guidelines—unlike the thresholds—do not reflect variations in the age group of the family members. Alaska and Hawaii have higher federal poverty guidelines than the rest of the country. Since the 1990s, the decline in the number of families receiving cash assistance reflects declines not only in the number of eligible families but also in eligible families’ participation in the program in response to TANF policies. From 1995 to 2005, the number of families who were eligible for cash assistance fell from about 5.69 million families on average each month under AFDC to about 5.27 million families eligible on average each month under TANF—a decline of about 420,000 families eligible for cash assistance overall, according to our TRIM3 analysis. Factors that contributed to the decline in the number of families eligible for TANF cash assistance include families’ higher incomes, which reflect TANF’s focus on work and the strong economy of the 1990s, and changes to eligibility rules.