PPA786: Urban Policy
Class 17:
The New World of Welfare Policy
PPA786, Class 17: New Welfare Policy
• Class Outline
▫ Brief history of welfare laws
▫ Provisions of the Personal Responsibility and
Work Opportunity Reconciliation Act of 1996
▫ Early Impacts of PRWORA
▫ PRWORA and the Great Recession
PPA786, Class 17: New Welfare Policy
• AFDC
▫ Aid to Families with Dependent Children, part of
the 1935 Social Security Act, was the main federal
welfare program until 1996.
▫ Low-income families with children were entitled
to AFDC if one parent was absent or disabled or
(in some states) both parents were unemployed.
▫ The AFDC “tax” rate was 100% from 1935 -1967,
67% from 1967-1981, and 100% from 1981-1996.
PPA786, Class 17: New Welfare Policy
• FSA
▫ The Family Support Act of 1988 was an unusual
bipartisan compromise.
▫ It placed some work requirements on AFDC
recipients through the JOBS Program, but the
requirements were flexible and could be satisfied
through education and training as well as through
employment.
▫ Moreover, FSA mandated that states provide child
care to JOBS participants.
PPA786, Class 17: New Welfare Policy
• The Waiver Era
▫ After FSA was passed, many states wanted to
experiment with new provisions, especially ones to
encourage work.
▫ In the 1990s, HHS started to give states waivers
to allow them to implement various reforms of
this type, with an obligation to study the impacts.
▫ By 1996, 27 states had major waivers and several
others had minor ones.
PPA786, Class 17: New Welfare Policy
• PRWORA and TANF
▫ AFDC was repealed by the Personal Responsibility
and Work Opportunity Reconciliation Act of 1996
(PRWORA).
▫ PRWPRA followed up on President Clinton’s
campaign promise to “end welfare as we know it.”
▫ This act replaced AFDC with the Temporary
Assistance for Needy Families program (TANF).
PPA786, Class 17: New Welfare Policy
• TANF: Funding
▫ TANF replaced AFDC’s matching grant system (which
had higher matching rates for poorer states) with
▫ Block grants based on 1996 state welfare spending.
▫ This approach:
 Eliminated the counter-cyclical impact of federal welfare
funding.
 Freed up a great deal of money for state experiments
when caseloads dropped.
 Does not adjust funding when the number of eligible
families changes.
PPA786, Class 17: New Welfare Policy
• TANF: Benefit Schedules
▫ TANF benefits exhibit the same wide variation
across states that was seen in AFDC.
▫ Since 1996, most state have lowered the implicit
welfare tax rate, usually from 100% to 50%,
although several states are in the 50-75% range
and a few still use 100%.
▫ A few states have a zero tax rate combined with a
cut-off when income reaches a certain point—a
type of notch!
PPA786, Class 17: New Welfare Policy
• TANF Benefits and Poverty (CBPP)
PPA786, Class 17: New Welfare Policy
• The Real Value of TANF Benefits (CBPP)
PPA786, Class 17: New Welfare Policy
• TANF: End of Entitlement
▫ Under AFDC, every family that met the eligibility
criteria was entitled to receive benefits.
▫ TANF is a funding stream (with strings), not a
program.
 If federal funds cannot pay for every family eligible for
TANF, a state is not required to raise the funds needed to
fill this gap.
 This has become a big issue in the current economic
downturn.
PPA786, Class 17: New Welfare Policy
• TANF: Time Limits
▫ TANF benefits cannot be given to anyone who has
received (or who lives in a family that has
received) any federal assistance (not just TANF)
for more than 60 months.
▫ Up to 20 percent of a state’s caseload can be
exempted from this requirement based on
hardship or abuse.
▫ A state can give benefits beyond 60 months using
its own funds, set shorter time limits, and/or add
“intermittent” limits.
PPA786, Class 17: New Welfare Policy
PPA786, Class 17: New Welfare Policy
• TANF: Work Requirements
▫ TANF requires that at least 50% of recipients (90% for 2parent families) must be working.
▫ States face severe financial penalties if this requirement is
not met.
▫ A state can define “Work” as subsidized or public-sector
employment or community service, as well as job search or
job readiness assistance for up to 6 weeks.
▫ Education and training generally do not count as “work”
unless they are in addition to 20 hours in a job or the
recipient is a single parent under 20.
▫ Recipients who do not comply must be penalized (although
Medicaid cannot be taken away from children).
PPA786, Class 17: New Welfare Policy
• PRWORA: Work First Programs
▫ The shift to a block grant combined with the decline in
case loads freed up a lot of money for welfare-to-work
programs.
▫ Many of these programs build on the experimental
evidence from the waiver era.
▫ This evidence suggests that
 Training alone doesn’t help much.
 Work First programs do boost employment and earnings.
 Work First programs with selective training do even
better.
 So do Work First programs with lower tax rates.
PPA786, Class 17: New Welfare Policy
• PRWORA: Child Care
▫ The shift to a block grant combined with the decline in
case loads freed up a lot of money for child care.
▫ PRWORA also set up the Child Care Development
Fund.
▫ However, a state is not required to provide child care
for families who receive benefits.
▫ Moreover, parents are not exempt from work
requirements because they can’t find child care unless
they have a child younger than 6.
PPA786, Class 17: New Welfare Policy
• PRWORA: Child Support Enforcement
▫ PRWORA increased emphasis on child support
enforcement
▫ Recipients of TANF funds must cooperate with
child support enforcement efforts (i.e. they must
identify the father).
PPA786, Class 17: New Welfare Policy
• PRWORA: Coverage of Immigrants
▫ TANF excludes immigrants arriving in the U.S. after
8/22/96 from eligibility for cash assistance, SNAP, and
other means-tested programs, including SSI, for a period of
5 years.
▫ Between 5 and 10 years (or until they became a citizen),
they could receive benefits under the original law, but only
if their sponsor’s income was counted in determining their
benefits.
▫ In 1997, many children, elderly, and disabled immigrants
had their eligibility for SNAP and SSI restored, and the
provision counting sponsor’s income was dropped.
PPA786, Class 17: New Welfare Policy
• PRWORA: SNAP Provisions
▫ PRWORA also altered the Supplemental Nutrition
Assistance Program (the program formerly known as
Food Stamps)
▫ SNAP has a 30% implicit tax rate (after disregards),
but no work requirement for people with dependents.
 “Able-bodied adults without dependents” have to work
20 hours per week or else be limited to 3 months of Food
Stamps in any 36 month period.
 But able-bodied adults with dependents must only
“register for work, accept suitable employment, and take
part in an employment and training program to which
they are referred.”
PPA786, Class 17: New Welfare Policy
• PRWORA: Medicaid Provisions
▫ Medicaid remains an entitlement program, and, in
principle if not practice, eligibility is determined
according to the AFDC rules that applied as of
July 16, 1996.
▫ There is no five-year limit on Medicaid eligibility.
▫ However, adults (but not their children) can lose
Medicaid eligibility for failure to meet work
requirements.
PPA786, Class 17: New Welfare Policy
• Changes in TANF Spending (Urban Institute)
• States spend TANF funds for basic assistance (cash
benefits), work activities, child care, transportation,
emergency assistance, and other needs.
• Thanks to the declines in caseloads, the share of total
expenditures for cash assistance dropped from 73% of
expenditures in 1997 to 39% in 2009.
• States must spend some of their own dollars on
programs for needy families or face severe fiscal
penalties. This is what is known as the “maintenance
of effort” (MOE) requirement.
PPA786, Class 17: New Welfare Policy
• Uses of TANF Funding (CBPP)
PPA786, Class 17: New Welfare Policy
• Changes in PRWORA’s Early Years (Urban
Institute)
▫ Following the passage of the 1996 reform law, welfare
caseloads sharply declined as fewer eligible families
entered the program and more families left.
▫ Participation in work and work-related activities by
welfare recipients increased considerably.
▫ Earned income among welfare recipients increased
substantially before the great recession.
▫ The economic picture for families who left welfare was
mixed (due to limited job security, poor health
insurance coverage, etc).
PPA786, Class 17: New Welfare Policy
• Four Lessons from Danziger about the Early Years
of TANF: Lesson 1
▫ “[W]hen unemployment rates are low, as they were in
the late 1990s, about three-quarters of recipients can
be expected to work in a given month; and, when
unemployment rates are moderate, as they are today
[pre-recession], about two-thirds of recipients are
likely to be working.
▫ In 1996, most researchers and analysts thought that
only about half of all welfare mothers would be likely
to work at any time. The ‘Work First’ initiatives
adopted by most states led greater numbers of single
mothers to move from welfare into employment than I
thought they could.”
PPA786, Class 17: New Welfare Policy
• Four Lessons from Danziger: Lesson 2
▫ “[A] minority of welfare recipients–probably about 10% of
the 1996 caseload–have multiple barriers to employment,
making it very difficult for them to hold jobs even when the
national unemployment rate is below 4%.
▫ Until PRWORA, researchers, policy analysts and agency
staff did not realize the extent of problems such as learning
disabilities, maternal and child health problems, mental
health problems and domestic violence that make it so
difficult for these women to get and keep jobs.
▫ Work First programs that primarily provide job search
assistance and that do not provide assessments and
referrals to services, such as to health and mental health
programs, are not likely to help these women overcome
their employment barriers and work steadily.”
PPA786, Class 17: New Welfare Policy
• Four Lessons from Danziger: Lesson 3
▫ “The third lesson is the confirmation of the wellknown adage, ‘last hired, and first fired.’ Tight labor
markets have a dramatic effect on the employment and
earnings prospects of all low-wage workers. More
welfare mothers worked in the aftermath of PRWORA
both because welfare agencies were requiring more job
search from them and because employers were willing
to hire workers who they would not employ when
labor markets were slack…
▫ More single mothers work today [pre-recession] than
they did prior to PRWORA… However, fewer single
mothers work today than they did in 1999 or 2000
when labor markets were tighter.”
PPA786, Class 17: New Welfare Policy
• Four Lessons from Danziger: Lesson 4
▫ “My fourth lesson is the confirmation of the well-documented
finding that the more work pays, the more single mothers will
work…
▫ In addition to welfare reform, several public policy changes in the
late 1990s raised the net wage that welfare mothers could expect
just as the reform was being implemented.
 The minimum wage was increased in 1997;
 the 1993 tax act greatly increased the maximum amount of the EITC…
 the 1997 State Child Health Insurance Program and changes in
Medicaid meant that a welfare recipient’s children would not lose
their coverage…
 PRWORA greatly increased the amount of funds …[for] child care
 and most states increased earned income disregards…
▫ All of these changes made it more likely that it would pay more to
move from welfare to work in the late 1990s than had been the
case in the early 1990s.”
PPA786, Class 17: New Welfare Policy
• Overview of the U.S. Safety Net (Ben-Shalom,
Moffitt, Scholz)
• The U.S. has social insurance programs,
such as social security, and means-tested
safety-net programs, such as TANF, SNAP,
and the EITC.
• Both types of programs have effects on
poverty.
• Funding for the means-tested programs is
in the following graph:
PPA786, Class 17: New Welfare Policy
• Safety Net Spending (Ben-Shalom, Moffitt, Scholz)
PPA786, Class 17: New Welfare Policy
• Conclusions about the U.S. Safety Net (Ben-
Shalom, Moffitt, Scholz)
• “The combination of the means-tested and social
insurance transfers in the system have a major
impact on poverty, reducing deep poverty,
poverty, and near-poverty rates by about 14
percentage points… in 2004.”
• The work incentives and dis-incentives created
by these programs are roughly offsetting, so that
the impact of these programs on poverty would
be about the same without these effects.
PPA786, Class 17: New Welfare Policy
• Conclusions about the U.S. Safety Net (Ben-Shalom,
Moffitt, Scholz), Continued
• The largest impact on poverty comes from social
insurance.
• “SSI, TANF, Food Stamp, EITC, and housing
assistance programs all have significant, though
smaller, impacts as well. Their effects are often
targeted on specific groups; for example, poverty rates
among single-parent families are significantly reduced
by the system.”
• Overall, the system gives lots of help to the elderly, to
people with disabilities, and to some single parents,
not much help to other groups.
PPA786, Class 17: New Welfare Policy
• TANF and the Great Recession
• Although many, if not most families who would have
received AFDC did not experience large declines in
income due to TANF before the Great Recession, the
changes in the program have caused severe hardship
over the last few years.
• Because of the switch to block grants, payments to
states did not increase during the recession.
• Because of time limits and work requirements, the
funds given to poor families usually did not increase,
even when the primary earner was laid off.
PPA786, Class 17: New Welfare Policy
• Unemployment and TANF (Urban Institute)
PPA786, Class 17: New Welfare Policy
• Caseloads and Poverty (Urban Institute)
PPA786, Class 17: New Welfare Policy
• SNAP and the Great Recession
▫ Because SNAP does not have work requirements
or time limits, it has been more responsive to the
needs created by the Great Recession.
 SNAP’s budget ($78 billion) now exceeds that of the EITC
($56 billion) or TANF ($33 billion, including state
contributions).
 The maximum benefit is $668 per month, but this will
decline when SNAP’s stimulus money expires.
 According to the Center on Budget and Policy Priorities,
"Roughly 93 percent of SNAP benefits go to households
with incomes below the poverty line, and 55 percent go to
households with incomes below half of the poverty line."
PPA786, Class 17: New Welfare Policy
PPA786, Class 17: New Welfare Policy
Food Stamps Usage
PPA786, Class 17: New Welfare Policy
• TANF, SNAP, and ARRA
• The 2009 stimulus package (ARRA)
provided additional money for TANF and
SNAP.
▫ But these funds are scheduled to run out.
• The current high levels of economic
deprivation in the U.S., particularly
among children, are likely to persist.