Mississippi recently generated national headlines for paying former NFL quarterback Brett Favre $1 million in welfare funds to promote a new college volleyball stadium. Others received inflated payments for motivational speeches, first-class travel, and luxury resort stays. The state’s auditor identified $77 million in misspent welfare funds from 2017 to 2020—about a quarter of the total amount spent by the state’s Temporary Assistance for Needy Families (TANF) program over that period. Favre repaid the funds that he received (though not the interest) and has not been charged with any crime, but the director of the state’s Department of Human Services has pleaded guilty to embezzling federal welfare funds.
The scandal is symptomatic of how states have come to view the TANF program as a loosely structured grant of federal funds that can be used for discretionary purposes. Over recent decades, as other federal means-tested entitlement programs have been greatly expanded, states have increasingly diverted TANF funds to pick up other expenses, for which federal funding is unavailable.
Welfare payments for single-parent families were originally established in the 1910s by states that saw them as a way of keeping widowed mothers out of poverty and kids out of orphanages. Within two decades, all states except Georgia and South Carolina had established mothers’ pension programs, with benefits set at levels that would allow widowed mothers to stay home with their children rather than work.
As the Great Depression caused state revenues to collapse and public-assistance caseloads to surge, Congress in 1935 established grants for states to provide what would become known as Aid to Families with Dependent Children. AFDC initially provided a dollar of federal funding for every two dollars of state spending on benefits for eligible single parents, in return for adherence to federal rules. Over time, these matching payments became more generous and the proportion of welfare recipients who were widows declined, while the number with children born out of wedlock increased rapidly. In the 1960s, federal court rulings and legal assistance expanded welfare eligibility beyond the levels that states had intended. Congress also made ADFC recipients automatically eligible for food stamps and Medicaid, which greatly expanded the benefits individuals stood to get by signing up for welfare.
As a result, the number of AFDC beneficiaries soared from 3 million in 1960 to 10 million in 1971—a plateau above which it would remain for a quarter-century. The overall structure of welfare payments gave much larger benefits to those who had children out of wedlock, leaving beneficiaries often better off if they didn’t work than if they did. As a result, welfare was widely viewed as making the problems of poverty worse. President Bill Clinton campaigned to “end welfare as we know it,” and in 1994, when Republicans took control of Congress for the first time in 40 years, they set about reforming the system.
The 1996 welfare reform law replaced AFDC’s matching funds with TANF’s block grants. The intent was to move beneficiaries from welfare to work, by letting states use funds for childcare, job training, or teen-pregnancy prevention, instead of simply providing cash payments. It also eliminated the federal entitlement of individuals to cash benefits, set targets for states to get beneficiaries to work, decoupled the program’s eligibility from Medicaid, and banned individuals from receiving cash benefits for more than five years over the course of their lives.
To secure the enactment of the 1996 welfare reform law, TANF block grants to states were based on historical matching funds that states had previously claimed under AFDC. Because wealthier states could spend more on the program, they could draw larger federal payments, and enormous disparities in allocations to states were therefore frozen in place. In 2020, whereas the District of Columbia received $3,876 per child living under the poverty line in TANF funding from the federal government, Mississippi took in only $276.
In the quarter-century since welfare reform, TANF’s block-grant funding has remained frozen at $17 billion per year, an amount since eroded 40 percent by inflation. Over that period, the portion of this funding dedicated to cash assistance has plummeted, from 76 percent to 31 percent. The number of recipients of cash benefits dropped rapidly, from 12.3 million in 1996 to 5.7 million under TANF in 2001, and it continued to fall steadily, to 2.9 million in 2019—a decline slowed little by major recessions. In 2020, the maximum TANF cash benefit in Mississippi totaled only $146 per month (10 percent of the federal poverty level); since 1994, the number of cash-benefit recipients in the state fell from 53,652 to only 1,877.
And yet, the disaster that many critics predicted did not occur. The proportion of single mothers working increased to the same level as those of single women without kids. Their relative consumer spending remained the same. Teen birth rates fell by more than two-thirds from their early 1990s level. The child poverty rate declined.
The 1996 welfare-reform legislation imposed targets for work requirements and time limits on eligibility for cash benefits, but these proved easy for states to evade. States need only half of those getting TANF cash benefits to meet work requirements, which can be satisfied by engagement in various activities, such as job search, life-skills training, substance-abuse treatment, therapy, education, community service, or looking after others’ kids. Token employment arrangements are common. Work-participation targets are lowered for any reduction in TANF cash-benefit caseloads, so 31 states are now altogether exempt from them. The states most impassioned about maintaining old-style AFDC benefits have been able to evade time limits with other funds.
Meantime, few such restrictions apply to the use of TANF funds for non-cash benefits. TANF’s block grants were designed to give states flexibility to fund innovative methods of preventing poverty by advancing the broadly defined purposes of the program (aiding care of children, reducing dependency, reducing out-of-wedlock pregnancy, promoting two-parent families). But the bulk of the funds have been shifted to fill state budget holes, rather than to expand support for employment.
California redirected TANF funds to pay for college scholarships, which it had previously funded out of its own resources. The state justified this as an allowable use of TANF funds by arguing that “support for low-income unmarried students age 25 or younger could prevent and reduce out-of-wedlock pregnancies.” Of course, it’s hard to see how sexual behavior or marriage rates would be greatly altered by merely shifting the costs of existing state activities to federal taxpayers. In a similar “funding swap,” Minnesota used TANF funds to replace existing state expenditures on community social services. And states such as Wyoming have cited the responsibility of school administrators for activities associated with TANF as a justification for allocating their costs to the program.
While federal law required states to demonstrate “maintenance of effort” of welfare and related work-support expenditures that they had previously undertaken with their own funds, this has done little to prevent the diversion of federal TANF funds to other purposes that states had previously undertaken. Furthermore, states have often simply reclassified activities that earlier had little to do with welfare to satisfy MOE requirements.
In the case of Mississippi’s varsity volleyball program, state officials hoped to circumvent a statutory prohibition on the direct use of TANF funds for “brick and mortar” construction projects by disguising it as a “lease” to a nonprofit to help needy families. Many of the relatively less egregious expenditures made by the state’s TANF program were legal—even while manifestly wasteful and of little benefit to poor families.
Most states have therefore taken the opportunity to scale back TANF cash benefits and rely upon other, much larger, federal programs to fill the gap. Because federal food stamp aid is reduced for every dollar that individuals receive in cash welfare benefits, states have long opted to provide assistance in-kind through Medicaid instead. The flexibility of TANF block grants has further facilitated the draw-down of federal funds. Half of food-stamp beneficiaries now qualify due to “broad-based categorical eligibility,” whereby TANF funds are used to send residents a nominal benefit (often merely a pamphlet). Their status as non-cash TANF beneficiaries qualifies them for food stamps entirely paid for by the federal government.
From 1996 to 2019, while annual TANF aid remained frozen at $17 billion, other public-assistance grants for states increased from $6 billion to $23 billion, housing grants from $17 billion to $32 billion, food grants from $15 billion to $37 billion, and Medicaid grants from $92 billion to $409 billion. Federal direct-assistance payments to individuals increased from $78 billion to $220 billion. Whereas AFDC in 1962 made up 53 percent of federal means-tested entitlement spending, by 1996 it accounted for only 9 percent, and in 2019, TANF accounted for less than 3 percent of aid reserved for the poor.
When he was chairman of the House Budget Committee, Paul Ryan proposed TANF-style block grants as a model for reform of food stamps, housing assistance, and other means-tested entitlement programs. That would be misguided. It would further concentrate the burden of aiding the poor on states with the fewest resources to do so, while increasing the vulnerability of entitlements to the business cycle—and it would invite further manipulation by states trying to inflate expenses and shift costs to federal taxpayers.
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