CHAPTER 2
WELFARE-REFORM LEGISLATION SINCE 1996

A TIME OF RADICAL CHANGE

The summer of 1996 brought about profound and controversial changes in the way America handles its welfare programs. Much criticism had been directed toward the previous welfare system, based mainly on Aid to Families with Dependent Children (AFDC). This criticism centered on claims that the system produced welfare dependency rather than temporary assistance to help recipients move into a job and off welfare. According to the testimony of LaDonna Pavetti of the Urban Institute before the U.S. House of Representatives Ways and Means Committee in May 1996, about 70 percent of AFDC recipients had received AFDC for more than twenty-four months and 48 percent had received assistance for more than sixty months. In addition to limiting the length of time spent on welfare and requiring participation in work activities, issues addressed under welfare reform included child care, child support, teen pregnancy, assistance to immigrants, and welfare costs.

When earlier welfare-reform efforts stalled in the federal government, many states began to explore ways to modify their welfare programs. In President Bill Clinton's first term, forty-three states were granted federal waivers, allowing them to experiment with different approaches to welfare and work. State plans generally included stiffer work requirements and time limits as well as greater demands of parental responsibility. Many of the programs that developed from those waivers helped to lay the foundation for the new welfare-reform law.

After many proposals, much congressional discussion, and several presidential vetoes, a massive welfare-reform bill, the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA; PL 104-193), was signed into law in August 1996. Replacing AFDC with Temporary Assistance for Needy Families (TANF), the law required that a welfare recipient work in exchange for time-limited assistance. It provided $1 billion over five years for performance bonuses to reward states for moving welfare recipients into jobs. Public Law 104-193 also required state "maintenance of effort," a continuation of welfare spending at a level that is at least 80 percent of 1994 expenditures. The law contained comprehensive child-support enforcement and support for families moving from welfare to work, including increased funding for child care and guaranteed medical coverage.

Overall the welfare caseload fell from a monthly average of 4.5 million families during fiscal year 1996 to an average of 2.1 million families per month during fiscal year 2002, a drop of 53.8 percent. This represents the largest welfare caseload decline in history. (See Table 2.1.) Observers agree that some of the decline was the result of a strong economy in which unemployment was around 4 percent, an unprecedented low, rather than welfare reform. A study conducted by the City University of New York and cited by the U.S. Department of Health and Human Services in its 2001 TANF Annual Report to Congress, attributed 60 percent of the reductions in caseloads to welfare reform and 20 percent to the effects of a robust economy. The Council of Economic Advisers estimated that about one-third of the reduction in case-loads between 1996 and 1998 was due to changes in federal and state policies, approximately 10 percent to the strong economy, 10 percent to the higher minimum wage, and from 1 percent to 5 percent to the lower real value of welfare benefits.

Some wonder whether the new welfare system is recession-proof. Other critics of the new system question whether it is fair to everyone. Some are concerned that the new system causes former welfare recipients—without adequate health care, child care, and affordable housing—to slip through the cracks of the welfare system into destitution and homelessness. Under the reformed system, states that are unable to provide jobs

with a living wage may merely move the poor population from welfare into low-wage work and deeper into poverty. As a result, modifications to welfare legislation continue to be proposed.

The Balanced Budget Act of 1997 (PL 105-33) made many modifications and additions to the 1996 welfare-reform law, including changes to the TANF block grant and funding for additional grants. An agriculture bill, which passed the U.S. Senate overwhelmingly in May 1998, included a provision to restore food stamps to 250,000 legal immigrants who were cut from the rolls under the 1996 law. Following its passage by the House of Representatives, the bill was signed into law on June 23, 1998, by President Clinton. New work requirements were implemented by the TANF reauthorization of October 1, 2003; the new law demanded increased hours of work participation of TANF recipients. The sharp decline in number of caseloads has been accompanied by a change in the composition of families served by TANF. In 1996 between 62 and 75.4 percent of AFDC recipients were children. In 2001 states found that between 64 and 84.5 percent of TANF recipients were children.

THE PERSONAL RESPONSIBILITY AND WORK OPPORTUNITY RECONCILIATION ACT OF 1996 (PRWORA)

Signed into law on August 22, 1996, Public Law 104-193 gives states broad flexibility to design and operate their own welfare programs while at the same time holding them accountable to the proposed regulations. States were required to implement their block grant programs by July 1, 1997. The Congressional Budget Office (CBO) predicted that though welfare spending would continue to grow about 50 percent through 2002, the rate of growth would be reduced. The CBO claimed that this drop in the growth of welfare spending would reduce the federal budget deficit by nearly $55 billion. (See Figure 2.1.)

A brief summary of the welfare-reform law, based primarily on information prepared by the U.S. Department of Health and Human Services, follows.

Title I: Block Grants

The law combines AFDC, Emergency Assistance, and the Job Opportunities and Basic Skills Training (JOBS) program into a single block grant (a lump sum of money) for each state. Federal funding for this TANF block grant is capped at an estimated $16.4 billion per fiscal year 1996 through June 30, 2004. Each state's allotment is based on previous years' federal funding for AFDC benefits and administration, Emergency Assistance, and JOBS.

States have considerable control over how they will implement the programs covered by the block grant, but the act requires that:

• Families on welfare for five cumulative years no longer receive further cash assistance. States can set shorter time limits and can exempt up to 20 percent of their caseload from the time limits.
• To count toward meeting the work requirement, a state must require individuals to participate in employment (public or private), on-the-job training, community service, work experience, vocational training (up to twelve months), or child care for other workers for at least twenty hours per week. State and local communities are responsible for the development of work, whether by creating community service jobs or by providing income subsidies or hiring incentives for potential employers.
• As part of their state plans, states must require parents to work after two years of receiving benefits. In 2000 states were required to have 40 percent of all parents, and at least one adult in 90 percent of all two-parent families, engaged in a work activity for a minimum of twenty hours per week for single parents and thirty-five hours a week for at least one adult in two-parent families. The rates for all families started at 25 percent in 1997 and increased five percentage points each year to 50 percent in 2002. For two-parent families the rates started at 75 percent and increased in 1999 to 90 percent. In 2000 all states met the overall participation rate for all families, but eight states failed to meet the goal for two-parent families.
• Each state must maintain at least 80 percent of its fiscal year 1994 level of spending on these programs. If a state meets the work requirement percentages, the maintenance-of-effort level may be reduced to 75 percent of 1994 spending. States must maintain spending at 100 percent of 1994 levels for access to the $2 billion federal contingency fund. This contingency fund was designed to assist states affected by high population growth or severe economic conditions, such as increases in food stamp caseloads or high unemployment rates.
• Unmarried teenage parents (under age eighteen) must live with an adult or with adult supervision and must participate in educational or job training to receive benefits. In addition, the law encourages "second chance homes" to provide teen parents with the skills and support they need and provides $50 million a year in new funding for state abstinence education activities.

None of the block grant funds can be used for adults who have been on welfare for over five years or who do not work after receiving benefits for two years. However, states are offered some flexibility in how to spend their TANF funds.

Title II: Supplemental Social Security (SSI)

The act redefines "disability" for children who receive SSI. A child will be considered disabled if he or she has a medically determinable physical or mental impairment that results in marked and severe functional limitations that can be expected to cause death or has lasted or can be expected to last at least twelve months. Reference to "maladaptive behavior" as a medical criterion was removed from the listing of impairments used for evaluating mental disabilities in children.

Title III: Child Support

To be eligible for federal funds, each state must operate a Child Support Enforcement program that meets federal guidelines. The state must establish centralized registries of child-support orders and centers for collection and disbursement of child-support payments, and parents must sign their child-support rights over to the state in order to be eligible for TANF benefits. The state must also establish enforcement methods, such as revoking the driver's and professional licenses of delinquent parents. In 2000 the Child Support Enforcement program collected almost $18 billion, up 49 percent since 1996.

To receive full benefits, a mother must cooperate with state efforts to establish paternity. She may be denied assistance if she refuses to disclose the father. Paternity establishments rose to more than 1.6 million in 2000, an increase of over 47 percent since 1996.

Title IV: Restricting Welfare and Public Benefits for Noncitizens

The original law severely limited or banned benefits to most legal immigrants who entered the country on or after the date on which the bill became law. Ineligibility continued for a five-year period or until they attained citizenship. In addition, states had the option of withholding eligibility for Medicaid, TANF, and other social services from legal immigrants already residing in the United States. Refugees, including those who have come for political asylum or other sanctuary, veterans, and Cuban/Haitian immigrants were exempted from the five-year ban.

Illegal immigrants have no entitlement to benefit programs, such as TANF or Medicaid. They can receive emergency medical care, short-term disaster relief, immunizations, and treatment for communicable diseases (in the interest of public health). They can also get community services such as soup kitchens and shelters, some housing programs, and school lunches/breakfasts if their children are eligible for free public education. States have established programs to verify the legality of an immigrant before paying benefits and may elect to deny Women, Infants, and Children (WIC) benefits and other child nutrition programs to illegal aliens.

The Balanced Budget Act of 1997 and the Noncitizen Technical Amendment Act of 1998 invested $11.5 billion to restore disability and health benefits to 380,000 legal immigrants who were in the United States before welfare reform became law on August 22, 1996. The Balanced Budget Act also extended the SSI and Medicaid eligibility period for refugees and people seeking asylum from five years after entry to seven years to give these residents more time to naturalize.

Title V: Child Protection

The law gives states the authority to use current federal funds to pay for foster care for children in child-care institutions. It extended the enhanced federal match for statewide automated child-welfare information systems through 1997 and appropriated $6 million per year (fiscal years 1996–2002) for a national random sample study of abused and neglected children.

Title VI: Child Care

The law requires that states maintain spending for child care for low-income families at the level of fiscal years 1994 or 1995, whichever is greater, in order to be eligible for federally matched funds. Mandatory funding is set at $13.9 billion through June 30, 2004, with states receiving an estimated $1.2 billion per year before matching begins. The remainder of the funds is available for state matching at the Medicaid rate. Total federal and state expenditures on child care totaled $3.2 billion in 2000, an increase of 60 percent over 1999 ($2 billion).

As under prior law, states must establish standards for prevention and control of infectious diseases, such as immunization programs, and for building codes and physical safety in child-care institutions. Child-care workers must also receive minimal training in health and safety. However, many low-income persons rely on informal sources of child care, including relatives and friends.

As a result of more parents working while still on welfare or leaving welfare to work, the critical need for child care has become more pronounced. The Urban Institute reported that more than 1.9 million children received child care each month in 2000, compared to approximately one million per month in 1996. The child-care support system gives priority to families leaving welfare for work over other low-income families. However, a study conducted by Ann Collins and Jean Layzer in 1999, National Study of Child Care for Low-Income Families: State and Community Substudy Interim Report (Cambridge, MA: Abt Associates, 2000), found that none of the sixteen states examined in the study served more than 25 percent of the children eligible under federal guidelines. Some have expressed the view that the current system penalizes low-income families who are already working, who are less likely to receive child care than welfare-leavers (those making the transition from welfare to work).

Title VII: Child Nutrition Programs

The law continues the existing child nutrition programs, such as the school lunch and breakfast programs. Maximum reimbursement is reduced, however, for the Summer Food Service Program and for some institutional food programs. States may decide whether to include or exclude legal immigrants from these programs.

Title VIII: Food Stamps and Commodities

The law reduces maximum benefits to the level of the "Thrifty Food Plan," an index set by the U.S. Department of Agriculture that reflects the amount of money needed to purchase food to meet minimal nutrition requirements. Benefits are indexed to the rate of inflation so that they increase as inflation rises.

The law also restructures the way certain expenses and earnings are counted in establishing eligibility for food stamps. When recipients' benefits are calculated, their countable monthly income is reduced by several "deductions," including a "standard deduction" and a deduction for excessively high shelter expenses. These deductions raise food stamp allotments. The standard deduction is frozen at the current level, $134 (in the contiguous forty-eight states and Washington, D.C.). The cap (limit) on shelter expense deductions gradually increased from $247 per month in 1996 to $300 in 2001 and will be frozen at $300 per month thereafter. State and local energy assistance is counted as income.

By law, all food stamp recipients who are eighteen to fifty years old and without children (known as "able-bodied adults without dependents" or ABAWD) must work at least part-time or be limited to three months of assistance in a thirty-six-month period. Recipients who were in a workfare program for thirty days but lost their placement may qualify for an additional three months of food stamps. (This provision was revised to allow states to exempt 15 percent of ABAWD recipients from this restriction.

The law increases the penalties for recipients and retailers convicted of fraud or trafficking in food stamps. It also allows states to convert food stamp benefits to wage subsidies for employers who hire food stamp recipients; the workers then receive salaries rather than food stamps.

STATE FLEXIBILITY REGARDING WAIVERS

Under the welfare-reform law, states that had received approval for waivers prior to July 1, 1997, were given the option to continue those cash assistance programs under some or all of those waivers. States were allowed to retain provisions that were inconsistent with the new law until their waivers expired if they accepted the option of continuing cash assistance programs covered by the waivers. However, the law limited the extent to which inconsistencies apply so as to maintain the law's strong work requirements.

The most common inconsistencies with the law's provisions for which waivers were claimed included the law's work and participation requirements. For instance, the law states that individuals must be engaged in work within twenty-four months without expressly providing for any exemptions. Vermont is operating under a waiver that requires individuals to obtain employment within thirty months.

Another inconsistency between the welfare-reform law and state waivers concerns time limits. The law requires the termination of assistance after five years but includes a 20 percent hardship exemption. As of June 2002, eight states were operating under waivers from the time-limit requirements. Most of these waivers expired in 2003. The TANF reauthorization signed into law on October 1, 2003 neither discontinued nor extended unexpired waivers.

Other areas inconsistent with the welfare law's provisions include those related to penalties for noncompliance with work requirements, transitional assistance, teen-parent school attendance, teen-parent living-arrangement requirements, and child-support cooperation penalties. The Department of Health and Human Services must review the state plans and approve the inconsistencies due to waivers.

1997 BALANCED BUDGET RECONCILIATION ACT

The 1997 Balanced Budget Reconciliation Act (PL 105-33) made a number of changes affecting state programs funded under TANF block grants, including partially restoring funding for some of the program cuts made in the 1996 welfare law. SSI benefits were restored to legal elderly or disabled immigrants who were receiving assistance as of August 22, 1996. These benefits were also restored to immigrants who were legally residing in the United States as of that date and subsequently became disabled. Legal immigrants who arrived after the passage of the welfare reform law are not eligible for assistance.

Funding for the food stamp employment and training program was increased so that states could create work-fare, or subsidized jobs, for food stamp recipients. Eighty percent of the funds must be spent on food stamp recipients who are eighteen to fifty years old and without children. With the 1996 law, this group was limited to three months of food stamp assistance during each thirty-six-month period unless the recipient was working at least half-time or engaged in employment and training. The balanced budget act allows states to exempt 15 percent of the ABAWD population from the three-month limit.

This act set a new mandatory penalty for failure to reduce assistance for TANF recipients who refuse to work. This penalty, to be imposed by the Secretary of Health and Human Services, may not be less than 1 percent, or more than 5 percent, of the TANF grant. The act also specified a mandatory 5 percent penalty if a state failed to meet work participation rates. Under the 1996 law, the HHS secretary had the option to penalize states.

Formulas were changed and the cap raised to allow a larger number of individuals participating in vocational education training to count toward the state's TANF work participation rate. Several changes were made in work definitions for the mandatory work requirements.

The 1997 balanced budget act also created two additional grants to aid state welfare programs. A welfare-to-work grant provided $3 billion over two years (1998 and 1999) to be used for job-related activities directed mainly at individuals with significant work barriers, such as lack of education and low skills in reading or mathematics, substance abuse, or a poor work history. In addition, the act created a $20.3 billion child health block grant, the State Children's Health Insurance Program. This money was targeted for assistance to uninsured, low-income children. States could use the new funds to make more children eligible for Medicaid or to purchase other health coverage, or both.

On April 12, 1999, the Department of Health and Human Services (HHS) issued the final TANF regulations. They include many provisions, some of which reflect significant changes from the proposed regulations, which affirm and enhance the flexibility of states to determine how best to use TANF funds to assist low-income families. The regulations, together with the already-existing substantial TANF financial reserves in many states that resulted from the decreasing number of welfare cases, provide strong support for states to improve their welfare reform approaches. The federal welfare law restricts HHS's authority to regulate state conduct or enforce any TANF provision except to the extent expressly provided in the law. The federal law expressly provides that HHS will impose penalties if a state fails to comply with requirements of the law in a number of areas. For example, a state can be subject to penalties if it uses federal TANF funds improperly, if it fails to expend the amount of state funds required under maintenance-of-effort provisions, if it fails to meet work participation rates, or if it fails to comply with time limits applicable to federal TANF funds.

There still is concern, however, that if states do not use their TANF funds, they may be taken away by the federal government for other purposes. While maintaining a surplus might offer security, opponents have urged states to spend more of their allotted money in order to avoid such an occurrence.

TANF REAUTHORIZATION

Authorization for the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 was scheduled to end on September 30, 2003. A number of bills related to reauthorization were put forward and a number of issues were debated in Congress, including changes in work requirements, funding levels, the role of education and training, and income support for those leaving the welfare rolls. In early 2004 the House of Representatives passed a reauthorization bill that would increase work requirements. The Senate Finance Committee drafted its own version of the TANF legislation, increasing both work requirements and child care funding; however, the reauthorization effort stalled during debates and never gained approval. A complete five-year reauthorization bill was still forthcoming when funding was extended through September 2004.