The Temporary Assistance for Needy Families (TANF) program provides block grants to the states to operate cash welfare programs supporting low-income families. In 1996, TANF replaced the open-ended Aid to Families with Dependent Children (AFDC) program which routinely reimbursed states up to 80% of their costs in providing cash assistance to low-income families.1 Under TANF, families with dependent children and pregnant women with an income below a specified percentage of the federal poverty line (a percentage set by each state) are eligible to receive monthly cash assistance from the federal government.
TANF was designed to promote job preparation, work, and marriage while encouraging the formation of two-parent families. It reformed the decades old AFDC program by reversing the perverse incentive for states to increase the number of people eligible to receive benefits. It requires able-bodied recipients to work a minimum number of hours each month — while also providing enhanced child care, transportation, job training and other benefits to prepare the most difficult to place welfare recipients for meaningful work.
TANF money is “block granted” to the states and each state is allowed to design and implement its own program and to set benefit and eligibility levels. The shift from an open-ended matching program to a capped, but guaranteed, block grant transformed the welfare bureaucracy from welfare intake offices into job placement centers.
The program currently distributes $16.5 billion to the states and they, in turn, are required to match the federal funding with $10.4 billion in maintenance of effort spending.2 The federal block grant funds are allocated among the states according to their peak expenditures on AFDC and related programs for the period from FY1992 to FY1995.3 In FY 2011,
4.4 million individuals — including 3.3 million children in 1.9 million families — received cash assistance through TANF.4,5,6 The FY 2010 median benefit for a family of three was $497 a month.7
The individual states set TANF benefit levels and must bear all program costs that exceed the amount provided by the federal block grant. At the same time, states are guaranteed that their federal grant will not be reduced, even if their welfare rolls decline — though states must use any savings to provide enhanced job preparation and other services to the remaining, more difficult to place caseload.
The TANF program design has remained largely unchanged since its creation in 1996, including the original law’s creation of a $2 billion “Contingency Fund” to assist states in the event of caseload growth due to economic downturns. However, despite the fact that $1.3 billion (65%) of the original Contingency Fund was untapped at the beginning of FY2008, the American Recovery and Reinvestment Act (ARRA) signed into law by newly inaugurated President Obama in February 2009, created an entirely separate additional two-year “Emergency Fund” of $5 billion. That new Fund boosted reimbursement to the states up to 100% of the cost of adding each new recipient to their welfare rolls.8 This economic incentive has worked to increase caseloads and undermines the basic TANF Block Grant by reviving the failed economics of the old AFCD program.
While the Obama administration had proposed to reauthorize expenditures for this Emergency Fund, Congress did not find the time to reauthorize it before it expired in FY2010. The Obama administration has also waived the requirement that states place a minimum percentage of their TANF recipients in jobs or otherwise require recipients to work.
Ronald Reagan understood that resources — be they federal, state, or one’s own — are, by definition, limited. And, he believed that it was a fiscal and moral imperative that limited government resources be targeted to those most in need. The eventual repeal of the AFDC program and its replacement with a system of block grants was one of President Reagan’s primary goals — and ultimately greatest legacies. The undisputed success of TANF is a testament to the career of Bob Carleson and the leadership of President Ronald Reagan — who together were the first to propose block granting welfare programs to the states when Ronald Reagan was Governor of California in 1971.
President-elect Reagan, as part of the transition process from the Carter administration, approved the following recommendation regarding the federal AFDC program:
“…the present open-ended matching system of financing the AFDC program be replaced with block grant funding with state discretion over all eligibility requirements, benefit levels, and work requirements…”
In 1996, Congress passed, and President Clinton signed into law the Personal Responsibility and Work Opportunity Act and replaced the AFDC program with the Temporary Assistance to Needy Families (TANF) program to “end welfare as we know it.” It repealed the open-ended Aid to Families with Dependent Children (AFDC) program which was originally part of the Social Security Act of 1935.9 As an open-ended program that paid states up to 80% of whatever costs they incurred with no time limits or work requirements for assistance, AFDC rolls had soared from 1 million families in 1965 to 5.1 million families by March of 1994.10
However, under the new TANF block grant, by 2011, the nation’s welfare rolls had dropped by nearly 65 percent to less than 2 million families — and from 12.2 million individuals to 4.4 million.11
Federal spending for TANF was capped at around $16.7 billion a year, but it was NOT indexed for inflation. As a result, the taxpayers more than a decade and a half later are seeing a 28 percent saving in the cost of the program.12 In addition, welfare rolls declined instead of increasing after the law was passed in 1996. Experts across the spectrum now agree that this fundamental change in economic incentives for the states under TANF turned a failing and dysfunctional cash welfare program into a successful jobs program for the poor.
As a result of repealing and replacing AFDC, both federal and state taxpayers have benefited from reduced government spending on cash welfare assistance while millions of families have since moved from welfare to work — with no increase in poverty.13