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Strengthen the Federal-State Partnership


The Welfare Reform Law of 1996 replaced the old Aid to Families with Dependent Children (AFDC) program with a new block grant called Temporary Assistance for Needy Families (TANF), thereby creating a new Federal-state partnership. No longer was policy set in Washington, with states permitted only a limited number of choices. Instead, states were given broad flexibility to spend funds in any manner reasonably calculated to achieve the goals of TANF. The Administration’s proposal will continue this partnership, maintaining the current level of funding.

In exchange for the increased flexibility of a block grant, states accepted a financial risk. If caseloads had continued to rise, states would have absorbed the additional costs. Fortunately, TANF worked. The number of individuals receiving cash assistance has fallen by 56 percent since the law was enacted. Record numbers of recipients and former recipients are working. States will not be punished for their success by reducing Federal funding. In addition, funding will not be cut because states need it to conduct a wide range of programs to help poor families become and remain employed, care for their children, and make responsible choices about marriage and parenthood.

During most of its implementation, the TANF program has benefited from a robust economy. However, the strength of TANF has become most evident during the recent recession. The sharp increases in caseloads that might have been expected have not occurred in most states. There is concern, however, about the states’ ability to respond to a sustained economic downturn. Thus, the Administration proposes to reestablish the $2 billion Contingency Fund, which expired last year, to provide additional funds to states with high and increasing unemployment. The proposal will also make it easier for states to reserve portions of their allotments as "rainy day funds" and allow these funds to be used for supportive services.

Summary of Proposals

To build on the success of TANF and continue the Federal-state partnership, the Administration proposal will:

Maintain Current Levels of the TANF Block Grant. The basic Federal block grant will be reauthorized at $16.6 billion annually for fiscal years 2003-2007. This maintains the current level of funding. These funds will be distributed among the states and territories as in current law. Full funding will allow states to continue their recent investments in welfare-to-work programs and post-employment supports — such as transportation and training — that enable families to retain employment, enhance skills, and move up the career ladder. It will also help states develop new and enhance current programs to promote healthy marriages and family formation

Continue the State Contribution Through the Maintenance of Effort (MOE) Requirement. Under current law, states are required to contribute at least 80 percent of the amount they spent on the programs that TANF replaced. This amount drops to 75 percent if states meet mandated work participation rates. Both features of current law will be retained.

Reinstate Supplemental Grants to States that Have Low Levels of Funding Per Poor Person, or High Rates of Growth. The block grant allocation among states was based on historical spending patterns. However, supplemental grants were established to help states that experienced high population growth or had low historical welfare payments. These grants expired after FY 2001. The Administration proposal will reinstate the supplemental grants at $319 million annually, the level provided in FY 2001.

Ease Limitations on Serving the Unemployed by Clarifying "Assistance" Definition. The distinction between "assistance" and "non-assistance" has been a source of considerable confusion for states and has restricted state creativity in helping those not on welfare who lose jobs. Our proposal will clarify terminology related to assistance and services. Childcare and other work support services will not be defined as assistance. This change in definition will expand state flexibility to help unemployed families avoid welfare.

Reauthorize and Improve the Contingency Fund. As under a provision of TANF law that expired last year, $2 billion will be available to help states that experience high or growing levels of unemployment or increasing food stamp caseloads. Some provisions will be modified in order to ease access to the contingency funds. Under this proposal, spending on childcare and separate state programs can now be counted toward the contingency fund MOE requirement. This will effectively reduce the amount states will have to increase their own spending before they can qualify for their share of the contingency fund. Our proposal also modifies the reconciliation process so that states that qualified for grants for less than a full year will not have their matching rate increased.

Allow State Designation of "Rainy Day Funds." States will be allowed to designate some or all of their current or previous year TANF funds for placement in a "rainy day fund." This provision will clarify that carried-over funds are being allocated by the states for future use, supporting prudent state efforts to plan for periods of economic downturn.

Increase State Flexibility Regarding Carried-Over Funds. Our proposal will also allow funds carried over from previous years to be spent on any benefit, service, or activity otherwise allowed under TANF. Current law allows prior year funds to only be used for cash assistance. This change, which will greatly increase state flexibility, is based on the recognition that cash benefits represent only one part of services funded by TANF.

Restore Full Transfer Authority to the Social Services Block Grant. The 4.25 percent limit on TANF funds that may be transferred to the Social Services Block Grant will, over time, be restored to 10 percent, as originally provided for in the 1996 legislation. The transfer limit will increase to 5 percent in FY 2004, 6 percent in FY 2005, 8 percent in FY 2006, and 10 percent in FY 2007.

Maintain High Level of Commitment to Childcare. The Administration’s proposal maintains the historic levels of childcare funding currently enjoyed by states. Entitlement childcare funding will be continued at $2.7 billion in FY 2003, and the Administration is requesting $2.1 billion in discretionary spending. The Childcare and Development Block Grant (CCDBG) provides funding for childcare services for low-income families, as well as for activities intended to improve the overall quality and supply of childcare for families in general. The Federal Government provides an additional $6.7 billion in Head Start funding. Moreover, states use TANF, the Social Services Block Grant, Head Start, and state and local funds to support childcare. Including both TANF funds used for childcare and Head Start, the Federal Government is approaching a $17 billion per year commitment to childcare. And this $17 billion does not include additional Federal spending on childcare through the tax code, through child nutrition programs, and through many other Federal programs. The overall goal of TANF reauthorization is child well-being. Childcare supports this goal as well as being an important work support. States can and should use the flexibility in the block grant to look for innovative ways to improve the quality of childcare, including the incorporation of early childhood literacy. The Department of Health and Human Services can serve as a clearinghouse of best practices in this area and provide states with any necessary technical assistance.

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