The Role of Welfare during a Recession

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Abstract

This brief, part of the Urban Institute's "Recession and Recover" series, examines how the TANF program (formerly AFDC) responds during a recession and how that response may differ in the current recession from its response in the past.

Introduction

Changes to welfare have significantly curtailed the role that the Temporary Assistance for Needy Families (TANF) program can play in cushioning the current recession. Historically, welfare caseloads rose during recessions, lagging behind the increases in unemployment (Council of Economic Advisers 1997). Unemployed parents who were either not eligible for unemployment insurance or who had exhausted these benefits often turned to welfare for cash assistance. But reforms in 1996 eliminated the individual entitlement to welfare and, more recently, stricter work-participation requirements were set. Most likely, Congress will need to consider increasing program funds and relaxing the work-participation requirements if this recession turns out to be long and deep, as many predict.

Background

TANF, like its predecessor, the Aid to Families with Dependent Children (AFDC) program, offers the only source of cash assistance to families with children and very low incomes that is not contingent on prior work history. Before TANF took hold, all eligible families were “entitled” to assistance. Now, the federal government provides states an annual block grant fixed at about $17 billion to run their TANF programs, and states must maintain 80 percent of their prior spending on programs that TANF replaced.1 This new financing arrangement also gave states enormous latitude in program design.

TANF also initiated five-year lifetime time limits on benefits paid through the federal block grant, though states can exempt up to 20 percent of the caseload from this limit. States can pay benefits beyond the time limit using their own money. Finally, on pain of a financial penalty, federal rules also require states to show that at least half of the caseload participates in work-related activities.

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