Urban Wire How Funding Sources of Cash Transfer Programs Can Affect Participants’ Access to Safety Net Benefits
Fay Walker
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Women paying at grocery store

Direct cash transfer programs are becoming increasingly popular across the US. Privately and publicly funded cash transfer proposals and pilots have launched in more than 60 jurisdictions, from Birmingham to Minneapolis. Interest in these programs stems from the growing understanding that cash transfers lead to positive outcomes. They are an efficient, equitable way to quickly get cash into the hands of people who need it while giving recipients agency over how they spend their money.

Though consensus is growing on the impacts of cash transfer, there are still no agreed-upon mechanisms for how to fund them. This issue is complicated by the fact that where program funds come from can affect a recipient's eligibility for other benefits and can trigger a “benefit cliff,” or a significant decrease in benefits—sometimes leaving families worse off.

For example, if someone gets a tax credit, it does not count as income to determine eligibility for most benefit programs, including the Supplemental Nutrition Assistance Program (SNAP) and Temporary Assistance for Needy Families (TANF). When Congress temporarily expanded the child tax credit, most families received a monthly cash benefit, but it did not affect eligibility for other programs. On the other hand, increased TANF benefits typically reduce SNAP benefits. If given as a gift, private funds typically would not affect tax benefits. But in some cases, a small increase in income from private funds can affect benefits.

We examined the funding mechanisms used in cash transfer programs in DC, Philadelphia, and Los Angeles to understand how their respective funding models affect recipients’ benefits and outcomes.

The COVID-19 state of emergency declaration prevented many from losing benefits

THRIVE East of the River is a partnership in Washington, DC, between four community-based organizations (CBOs) that provided $5,500 to about 500 families between July 2020 and July 2021 who primarily lived in southeast Washington, DC, almost all of whom received at least one other benefit. 

Because participants received the money when emergency waivers related to the pandemic were in place, the payment had little effect on other benefits. Without those waivers, private cash could have reduced other benefits, and many recipients likely would have been forced to choose between their existing benefits and the new cash offer.

Programs should help participants navigate potential benefit cliff effects

Benefits are complex, and it is essential to provide participants with benefit navigators who can ensure participants understand the trade-offs of participation.

The Basic Income Guaranteed: Los Angeles Economic Assistance Pilot will provide approximately 3,000 people with $1,000 per month for 12 months. The money will come from city council and other local funding sources. The program offers potential participants access to benefit navigators before enrollment to help them understand the impact on their benefits and mitigate benefit loss.

Cities including Alexandria, Chicago, and Minneapolis are piloting universal basic income programs using their American Rescue Plan Act (ARPA) funding. These pilots use municipal funds, whether from ARPA or the city council. Although municipalities can create exemptions for local benefits, money from these pilots may count as income and decrease federal benefits.

In another funding situation, Philadelphia’s guaranteed income project will use federal TANF funding to provide up to 60 recipients with $500 a month for 12 months beginning in March 2022. TANF recipients are automatically eligible for SNAP benefits, but increased TANF funding would still count as income, reducing the SNAP benefits a family can receive.

Building on existing relationships can improve outreach and enrollment processes

DC’s THRIVE program showed that privately funded programs working with established relationships can start up quickly. To participate in THRIVE, people had to live in Ward 8, have household incomes below 50 percent of the area median income, and have relationships with at least one of the CBOs before the pandemic. This relationship enabled the CBOs to identify, reach out to, and follow up with recipients in a matter of months.

Even though the CBOs were providing cash, many potential participants were wary of offers of free cash. Scammers often target people with low incomes when cashin the form of relief aid, tax credits, or tax refunds—comes their way. THRIVE largely eased this concern among residents because the offer came from a trusted source that had a relationship with the community.

Federal pandemic relief funds have provided cities with unprecedented opportunities to fund cash programs, but how funding affects other benefits continues to pose a challenge pilot programs must navigate. As cash transfer programs grow in popularity, and now that jurisdictions are no longer in a state of emergency, pilots must consider how they implement and fund programs to ensure participants do not lose crucial benefits.

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Research Areas Social safety net
Tags Welfare and safety net programs
Policy Centers Metropolitan Housing and Communities Policy Center
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