Feds consider limiting how states can use welfare funds

Concerned that reforms made to welfare in 1996 are hindering efforts to get money to needy families, the Biden administration is moving to limit how that funding can be used. But states are worried that some of the proposed changes are too restrictive and say they need flexibility to best serve the people at risk of being in poverty. 

The proposal by the Department of Health and Human Services would, among other things, clarify the kinds of programs that Temporary Assistance for Needy Families, or TANF, dollars can be used for and “establish a ceiling on the term ‘needy’” so that the money can benefit only the lowest income people. In one positive for states, the proposal would make it less likely that recipients will be penalized for not meeting work requirements, just months after Congress tightened them.

States, in particular, are concerned with the administration’s effort to rein in the types of programs TANF funding can go to. Many are worried that that they will no longer be able to use TANF dollars on a wide range of worthy efforts including supporting afterschool programs, investigating child abuse and bolstering foster care. The proposal is also being criticized by pro-life Republicans because it would no longer allow states to use TANF dollars to fund controversial crisis pregnancy centers.

At the heart of the proposal is the administration’s concern over how little of the $16.5 billion in annual spending for the program has wound up in the pockets of poor families with children after Congress approved the Clinton administration’s 1996 welfare reforms. Back in 1997, 71% of TANF dollars ended up in the pockets of people in poverty, but that dropped to only 23% in 2021.

There are several reasons why less of the annual spend is making it to families. One is that fewer people qualify for TANF because of work requirements and a five-year time limit set by the 1996 reforms, said Nick Gwyn, a consultant with the left-leaning Center on Budget and Policy Priorities. Another is that Congress has not increased funding for the program in 27 years, even to reflect inflation.

In fact, most states have also not increased funding to keep up with inflation, according to an analysis by CBPP. Between 1996 and 2021, only six states have increased benefits. Another 29 states have increased benefits a little but not enough to match inflation. And 16 states haven’t increased benefits at all.

Restricting Use of TANF Funding on Certain Programs

To ensure the money goes to TANF families, the administration wants to remove some of the flexibility states have when deciding how to use the money. HHS says that much of it is going to efforts that may be worthwhile but do not really meet the program's goal of assisting poor families. The department wants states to spend more money on helping recipients get jobs.

“More than 27 years after the establishment of TANF, state programs have shifted away from a focus on direct cash and employment assistance,” the proposal said.

The administration would no longer allow states to use the money in a way that “a reasonable person” would agree does not meet at least one of the program's goals.

The 1996 reforms laid out four ways that TANF dollars can be used, including to “prevent and reduce the incidence of out-of-wedlock pregnancies,” and “provide assistance so that children can remain in their own homes or in the homes of relatives.”

One type of program the new proposal would restrict the use of TANF dollars for is crisis pregnancy centers. At least five states—Indiana, Louisiana, Missouri, Ohio and Pennsylvania—use TANF dollars for these centers. Mississippi Sen. Cindy Hyde-Smith, a Republican, and her colleagues in the Senate and House wrote in a letter to HHS that the proposal is “threatening to strip [the centers] of millions of dollars [...] to fund life-affirming services to empower pregnant women to choose life for their babies instead of abortion.”

But in its proposal, the department argues that evidence that such programs reduce out-of-wedlock pregnancies is “tenuous or even nonexistent.” Family planning and programs to prevent youth pregnancies, on the other hand, would meet the standard, the department said.

Another area where the administration would limit TANF spending is on investigating child abuse, which it says “would likely not be allowable.” Investigating whether a child has been harmed and should be removed from a home might be important, but it’s not in keeping with the goals of the program, which seeks to keep kids with their families.

Furthermore, much of the $2 billion states are spending on child welfare systems pays for operating costs and “not to meet the goal of preventing children from entering into foster care,” the department wrote. Parenting classes and family reunification efforts would be allowed, as would sending more cash to families.

Defining “Needy”

The 1996 welfare law did not define what “needy” means, leaving it up to the states to decide. But by doing that, according to the proposal, states are spending $1 billion on college scholarships that even middle- and upper-income students are eligible for. Nearly $1 billion is spent on youth services that are not targeted to vulnerable youth, and millions more goes to tax credits, employment services, housing, pre-kindergarten programs and emergency assistance for people making more than twice the poverty level.

“Our concern is not the services for which the funds are used, but rather that TANF funds are being expended for programs that are not targeted to needy families as intended by Congress,” the department wrote.

As a result, the department is proposing that TANF funds can no longer be used to assist people making more than twice the federal poverty rate, or $49,720 for a family of three. That’s because “we think states are going beyond the bounds of a reasonable definition of ‘needy,’” the proposal said.

“It's going in a positive direction by trying to get states to focus their funding more directly on the basic needs of needy families,” said Gwyn of the CBPP. States are using the funds for “purposes that are good in their own right,” he continued, “but they're not really connected to the fundamental purpose of the TANF program.”

House Republicans, meanwhile, have criticized the proposal, saying reducing the states’ discretion “goes well beyond” the department’s authority and goes against their push to tighten work requirements.

“The overarching goal and stated purpose [of the welfare reform law] was ‘to increase the flexibility of states,’” wrote Missouri Rep. Jason Smith, chairman of the House Ways and Means Committee, and Illinois Rep. Darin LaHood, chairman of the Work and Welfare Subcommittee.

State welfare office directors and the National Conference of State Legislatures are also opposed to the proposal. Limiting the use of TANF dollars to help people making below the amount proposed is “too rigid and narrow a policy approach,” wrote the American Public Human Services Association, or APHSA, which represents state and local human services agencies, and the National Association of State TANF Administrators.

States would not be able to “shift upstream” and “intercept” people who could fall into poverty, they argued. The department should also allow states to use the TANF dollars to help people at “material risk” of falling below twice the federal poverty level, the associations wrote.

Dealing with poverty is "an art, not a science,” said Matthew Lyons, APHSA’s senior director of policy and practice. “We are concerned about creating artificial cliffs for families that are on the border of falling into deep structural poverty. The department should allow enough flexibility so that we can be nimble and responsive when people are facing real risks.”

In addition, not knowing what kinds of programs a “reasonable person” would allow would complicate “state and local understanding of how to comply,” the letter said.