The Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996 consolidated three federal-state matching-grant programs into one block grant, Temporary Assistance to Needy Families. TANF offers states considerable spending flexibility, but also imposes new work requirements and time limits for welfare recipients. Initially, most states will receive more federal funds for welfare than they received in 1996. They can spend their federal dollars in one of three ways: reduce their own welfare spending down to maintenance-of-effort requirements; increase total welfare spending; and/or save funds for future welfare needs. This policy brief argues that there are sufficient incentives for all three to occur, with states almost certainly varying in their responses.