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Report

What Works in Welfare Reform

Evidence and Lessons to Guide TANF Reauthorization

06/2002

The federal welfare reform law — the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) — is slated for reauthorization later this year. When the act passed in 1996, policymakers, journalists, and academics characterized it as “revolutionary,” “sweeping,” and “pathbreaking.” Indeed, the law entailed a significant leap of faith. Little was known then about the likely effects of some of its most important provisions: a five-year life-time limit on the number of months federal funds could be used to pay a family's welfare benefits; a daunting requirement that states involve at least 50 percent of single-parent welfare recipients (90 percent of two-parent household heads) in 30 hours per week of work or related activities; tough restrictions on the type and amount of education and job search activities that could count as meeting the work participation requirement; and incentives to reduce out-of-wedlock parenting and promote marriage.

In addition to these work- and family-focused provisions, the new act abolished the open-ended entitlement to benefits and replaced it with a fixed-dollar or capped block-grant amount to each state. These block-grant provisions afforded states remarkable flexibility in the design and structure of programs for the poor. States capitalized on the new flexibility in both predictable and surprising ways. As expected, some states immediately set shorter time limits on welfare receipt and tightened sanctions for noncompliance, including use of full-family sanctions that end the entire welfare grant if the parent failed to meet participation requirements. More surprising, nearly all states set out to make work pay by allowing more welfare recipients to mix work and welfare benefits, at least temporarily, by increasing the amount of earnings that would not be counted against their benefits when welfare recipients took jobs. In another surprising change for its magnitude and pervasiveness, many states opted to transfer nearly a third of their block-grant resources to child care, child welfare, and other related program areas.

Following these changes, uncertainty reigned. Would states be able to meet the new participation standards? Would the strict work requirements, harsher sanctions for noncompliance, and time limits on benefits deepen material hardship or spur increases in employment? Would children and families be helped or harmed when parents went to work? Would work incentives increase or decrease work effort? Would the new reforms be the catalyst for changes in marriage and childbearing among the poor?

The only certain outcome is that federal funding will end on October 1, 2002. In practical terms, to keep the 1996 law in effect, Congress must pass reauthorizing legislation by the fall of this year. Despite broad, bipartisan support when the act originally passed and extraordinary gains in employment among welfare recipients and among single parents in general, as well as declines in welfare caseloads following enactment, disagreement on three key issues — participation standards, the emphasis to be placed on caseload reduction versus poverty reduc-tion, and strategies for strengthening the marriage provisions — threaten to prolong the debate.

Fortunately, five years after PRWORA's passage, an extraordinary body of evidence now exists on which to ground and frame the reauthorization debate. While there are still some important unknowns — particularly how programs and outcomes will be affected by the recent economic slowdown and tight state budgets — much is now known about the effects of alternative welfare reform strategies on work, welfare use, income, and child outcomes. With an eye to informing policymakers as they deliberate over the Temporary Assistance for Needy Families (TANF) reauthorization, this guide reviews what states have done with the flexibility afforded them by PRWORA, synthesizes findings from dozens of rigorous studies of welfare reform's effects on poor families and government budgets, and spells out the implications of this research for future welfare and employment policy.

Reauthorization in a Changing Context

Three forces, working synergistically, were responsible for the post-reform employment and welfare caseload results: the strongest sustained period of economic growth in modern times; the expansion of policies that support the working poor (such as the Earned Income Credit, which uses income-tax refunds to supplement the earnings of low-wage workers, including those without tax liability); and the PRWORA reforms that established the TANF provisions, which replaced the old welfare program, Aid to Families with Dependent Children (AFDC).

As unemployment rates below 4 percent caused employers to dig deep into the ranks of the formerly unemployed to find workers, welfare reform's focus on employment and its new message that welfare is temporary undoubtedly prodded many recipients to seek work who would not have otherwise done so, making a significant contribution to the extraordinary recent drop in welfare dependency and the rise in employment among the nation's low-income families. No one anticipated these developments.

In light of this progress, one might ask, “If it isn't broken, why fix it?” But the forces that buttressed welfare reform in the late 1990s are shifting. Economic growth has slowed during the past year, and many of the long-term recipients who remain on welfare today, as well as some of those who have left but remain unemployed, face a number of daunting barriers to finding and keeping jobs. In addition, states have accumulated only limited experience with respect to several key features of the 1996 law. In more than half the states, federal time limits on welfare receipt do not become effective until this year; few states have yet had to meet the strict work participation standards that the act established in 1996 (largely because the credit that states get for welfare caseload reductions has lowered those standards nearly to zero); and few states have pursued programmatically the act's marriage promotion goals. Finally, the states' success in promoting employment has brought into sharper focus two new challenges: helping the working poor retain their jobs and advance in the labor market and aiding hard-to-employ recipients left behind by welfare reform.

President Bush's summary Plan to Strengthen Welfare Reform, as codified in the recently passed House of Representatives bill HR 4737, proposes six important changes that his administration and others hope will sustain reform's momentum in this new and changing environment:

  • Recognizing the formidable costs of meeting the challenges ahead, the plan would sustain funding for TANF, the Child Care Development Block Grant, and related programs, while increasing state flexibility to use those funds.
  • Building on new information about the effects of alternative welfare reform approaches on children, the plan would establish children's well-being as one of TANF's overarching purposes.
  • Stimulating states' interest in and know-how about sustaining and promoting marriage, the plan proposes substantial investments in innovation and experimentation in this area.
  • Helping to simplify administration, the plan would clarify the definition of “nonassistance” — the list of TANF services and benefits that do not count as welfare benefits and thus are not subject to the welfare time-limit clock.
  • Giving further support to recipients who take jobs, the plan would make the Food Stamp program more worker-friendly and the child support program more family-friendly by getting more money into the hands of families. Child support orders would be made more responsive to the changing ability of fathers to pay.
  • The plan proposes to reduce the caseload reduction credit while ratcheting up participation standards - giving added emphasis to the strong message TANF already sends to the states, namely, that work and the reduction of welfare caseloads are the central goals. The plan aims to achieve this goal while permitting limited use of education and training as well as services for the hard-to-employ (but only during the first three months on the rolls and thereafter only if the participant works at least 24 hours a week).

As policymakers consider TANF reauthorization, how should the final federal law emerging from that process respond to reform's changing context, accumulated experience, and new needs? And what changes should states make in their own laws as they look to pass conforming legislation after the federal government acts? It is useful to begin by examining how states have shaped their welfare reform strategies since 1996.