Temporary Assistance For Needy Families: Spending And Policy Options

January 21st, 2015
in econ_news

from the Congressional Budget Office

Temporary Assistance for Needy Families (TANF) is a federal program that provides cash assistance, work support, and other services to some low-income families. The cash assistance is generally limited to families with income well below the poverty threshold and few assets; it goes to roughly 2 million families per month, most of them headed by single mothers. The work support (such as subsidized child care) and the other services (such as initiatives to reduce out-of-wedlock pregnancies and promote marriage) are usually available to families with income up to twice the poverty threshold.

Follow up:

The states administer TANF and have considerable latitude in determining the mix of cash assistance, work support, and other services that it provides. However, if too few families receiving cash assistance are participating in work-related activities, a state can lose some federal funding. States therefore impose work requirements on recipients of cash assistance. Also, those recipients face federal limits on how long they are eligible for cash assistance. The work requirements and the time limits are intended to achieve one of TANF's goals: ending recipients' dependence on government benefits.

How Much Is Spent on TANF and What Does It Provide?

Almost all of the federal government's TANF funding takes place through a block grant called the state family assistance grant (SFAG). Because the size of that grant has not been adjusted for inflation, its purchasing power has declined by about 25 percent since 1998, the first full year the program was in operation. Through the SFAG and a smaller funding mechanism called the contingency fund, the federal government spent $17 billion on TANF in 2013, which was the lowest inflation-adjusted amount in the program's history.

TANF is funded not only by the federal government but also by the states, which must document a certain amount of nonfederal funding (often state funding, but also funding from local governments and private organizations) to avoid losing part of their SFAG allotments. States that spend more than that amount can receive more federal support through the contingency fund. In 2013, states reported spending about $15 billion of nonfederal money on services intended to meet TANF's goals. For the most part, state and federal funds support the same array of TANF services.

Most TANF funding was initially spent on cash assistance. Between 1998 and 2008, however, the share of funding spent on cash assistance fell from about 65 percent to about 30 percent (see figure below). A number of changes explain that decline. For one thing, the number of families receiving cash assistance, which had already fallen from 5 million in 1995 under the program that preceded TANF to 3 million in 1998 under TANF, continued to fall through 2008. Also, the inflation-adjusted value of the monthly benefit that those families received decreased substantially. Meanwhile, spending on work support and on other services grew. Cash assistance, work support, and other services now account for about a third of total TANF funding apiece.

Spending on TANF and the Programs That Preceded It, by Type of Assistance, 1994 to 2013

Over the past few years, only about one-quarter of families with income below the poverty threshold have received TANF cash assistance in a typical month. The average monthly benefit was about $400, or roughly one-third of the poverty threshold for a family of two.

How Does TANF Compare With Other Federal Programs and Tax Credits for Low-Income Families?

Spending on TANF has been declining as a share of federal spending on means-tested programs (that is, programs targeted at people with low income) and tax credits for low-income people. As the inflation-adjusted value of federal spending has fallen for TANF, it has increased substantially over the past two decades for many of the other programs and credits: Supplemental Security Income (SSI), which provides cash assistance to low-income people who are elderly or have disabilities; the earned income and child tax credits, which help low-income people who have earnings; and programs that provide health care, nutrition assistance, and grants for college and other postsecondary education to low-income people. Today, the federal government spends far more on many of those programs and tax credits than on TANF.

Most families that receive cash assistance through TANF also receive health insurance through Medicaid and nutrition assistance through the school meal programs and the Supplemental Nutrition Assistance Program (SNAP). Some TANF families also receive additional cash assistance because of a family member's disability or through the earned income and child tax credits. In addition, a small number of families receiving cash assistance through TANF receive subsidized housing.

How Does TANF Affect Employment?

Like many means-tested programs, TANF creates an incentive not to work by reducing benefits as recipients' earnings rise. However, the program includes mechanisms to counter that effect. In particular, the federal government requires a certain percentage of each state's adult cash assistance recipients—50 percent, before adjustments are made—to be either employed or participating in activities that could lead to employment. If that "work standard" is not met, states risk losing some of their TANF funding (though they can take a variety of measures to retain it). States therefore require most adult recipients to work or to prepare for employment in other ways.

The work standard and state work requirements generally apply only to people who are the parents of children receiving cash assistance and who are not disabled. In most years, only about a third of those adults have had enough hours in qualifying activities to count as work participants (see figure below). But that level of participation nevertheless allowed most states to meet the work standard before 2007, because the federal government, in accordance with the law that established TANF, reduced each state's 50 percent requirement in proportion to the reduction in the number of families receiving cash assistance in that state since 1995.

Work Participation Status of Families Receiving Recurring Cash Assistance Through TANF, 1998 to 2011

In 2007, however, the Congress changed the work standard's reference year from 1995 to 2005; that is, the 50 percent requirement would now be reduced in proportion to each state's (much smaller) reduction in the number of families receiving cash assistance since 2005. To date, most states have met the higher work standard that resulted by using a variety of approaches, but not by increasing the number of recipients with enough hours in qualifying activities. The states that have failed to meet the higher work standard run the risk of incurring financial penalties.

How Would Various Policy Options Affect TANF?

CBO has assessed 12 ways that the Congress might decide to change TANF.

The first five options would change the size of the SFAG or the contingency fund. Two of those options would affect the federal budget deficit over the next 10 years; the remaining three would shift TANF funding to different groups of low-income families but keep the total amount of federal spending constant.

The next five options would change the TANF work standard. In general, loosening the work standard would give states more flexibility to experiment and to provide the services that they thought were best for their residents; tightening it could prevent families from becoming dependent on government aid. Those options would probably not have a significant effect on the federal budget: Though they could change the extent to which states paid penalties for violating the work standard, those penalties are typically quite small.

The final two options would change the incentives for states to spend their own money on TANF. Those options could affect how many families have access to cash assistance. But they would probably not have a significant effect on the federal budget, because states would probably adhere to the new requirements and thus avoid losing part of their SFAG allotments.

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