The voices of Urban Institute's researchers and staff
May 11, 2018

A proposal to modernize TANF could bring new incentives and unintended consequences

May 11, 2018

As someone who has studied Temporary Assistance for Needy Families (TANF) since it was implemented more than 20 years ago, I was eager to see how a discussion draft released by the chairman of the House Ways and Means Committee earlier this week would change the program.

TANF is a federal safety net program designed to assist needy children and their parents through various supports and “reduce dependency by promoting job preparation, work, and marriage,” among other purposes. Because it is administered through a block grant to states, states are given flexibility in how they spend TANF funds.

Over the years, states have spent a shrinking share of the funds on direct assistance to families, job training, and other activities to prepare parents for the workforce. In 2016, states spent less than half the block grant and related state funds on core benefits and services, including cash assistance, employment and training, and child care.  

There is considerable bipartisan agreement that TANF could do more to support low-income children and to help parents support their families through good jobs. An initial reading of the draft language suggests three important implications for families and states:

1. Shifting focus to employment outcomes creates new incentives and potential unintended consequences.

The proposal would alter the measure by which states are evaluated, shifting the focus from documenting the “work participation rate” (the percentage of work-eligible participants engaged in work-related activities) to reporting on employment outcomes of participants after they exit the program.

The draft outlines an ambitious accountability system that would measure success based on the share of adults employed in an unsubsidized job in the second and fourth quarters after leaving TANF and their wages, as well as the share of youth completing high school or the equivalent. These proposed measures mirror those in workforce development programs under the Workforce Innovation and Opportunity Act (WIOA).

Using metrics focused on employment, rather than tracking hours spent on specific activities, would change incentives for states. This change would, of course, increase the incentive for states to prepare people for sustained employment.

More subtly, holding states accountable for employment outcomes only after someone stops receiving TANF assistance could create an incentive to keep people on TANF until they are ready for a job they can keep, which could boost the material support given to families and their future employment prospects.

But this change could also provide incentives for states to not serve people with the greatest need or with barriers to employment, thereby cutting those families off from much-needed support. Comparing performance across states could reflect differences in state policy choices about whom to serve and for how long as much as it could reflect true differences in employment outcomes. 

The proposal’s provision to adjust performance benchmarks based on characteristics of their TANF caseload and economic conditions could mitigate negative incentives for states. This approach would grant states flexibility in crafting their own definition of success.

A big question about the proposed shift to measuring employment outcomes is how states will access employment and wage status data on people who have exited TANF. Currently, WIOA job centers are required to demonstrate employment outcomes of participants who have exited WIOA services and do so using wage record data that employers report to states as part of the unemployment insurance system.

But many state TANF programs don’t have access to these data, and the data may not include all former TANF recipients who got jobs because it excludes contract workers, who represent a growing share of the workforce.

2. Increasing flexibility in work activities could help families improve their skills but doesn’t reduce red tape.

The proposal aims to better support employment outcomes by assessing whether parents are ready to join the workforce and allowing a wider range of activities tailored to their needs to prepare them for work. The proposal also mandates they have personalized action plans with short-, medium-, and long-term goals.

This provision should come as a welcome change for state TANF administrators who have been frustrated by the limited set of work-readiness activities allowed by current law. But the provision doesn’t address administrators’ other chief complaint that states need to track and account for every hour people spend in work or work-preparation activities. The continued requirement for tracking engagement in addition to the personalized plans could add to states’ administrative burdens.

3. The revised funding approach could reduce spending on low-income children and families.

Although the bill seems to call for targeting all TANF funds toward families earning less than 200 percent of the federal poverty level, proposed changes to the TANF funding approach might reduce total spending on children and families in poverty. It’s worth noting that more than 70 percent of people receiving TANF are children.

Under current law, states receiving federal TANF block grant funds are required to continue spending a minimum specified amount of state “maintenance of effort” funds based on their historical state spending on welfare programs.

The proposal would reduce the amount states are required to spend toward maintenance of effort. It also converts 25 percent of the federal funding from a block grant to capped matching funds, which states can access only by spending state funds on cash assistance, work supports, and other core activities. This change leaves open the possibility that states could reduce their spending and pass up the federal matching funds.

In the proposal, the amount of federal matching funds each state could access would be based on a formula reflecting the number of children living in poverty in each state. This would shift funds away from states that historically invested more in supporting low-income families and toward those that invested less. It is unclear whether the states that historically invested less in low-income families would now opt to invest the additional state funds that would be required to access the full federal match.

What’s next for TANF?

As my colleague Nisha Patel noted in her testimony before the Ways and Means Subcommittee on Human Resources, any change to TANF must keep its eyes on the prize: reducing child poverty. Only 1.4 million families with children receive income support from TANF, even though 8 million families with children live in poverty.

Lawmakers debating provisions to reauthorize TANF for the next five years should consider the incentives and the unintended consequences in policy proposals aimed at modernizing the program. 

Audree, 2, plays while her mother, Samantha Watson, cleans the kitchen. Watson is a single mother and a nursing student at USM, who receives benefits from a federal welfare program called TANF. Without TANF, Watson says she would not be able to go to school while supporting her daughter. Photo by Brianna Soukup/Portland Press Herald via Getty Images.

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