The Future of Children, Princeton - Brookings: Providing research and analysis to promote effective policies and programs for children.

Since welfare reform was enacted, caseloads have fallen dramatically, single mothers' earnings and employment have increased, and the child poverty rate has fallen. These statistics do not tell the whole story, however. As the reauthorization debates unfold in 2002 around child care and the welfare block grant (Temporary Assistance for Needy Families, or TANF), one of the key criteria for measuring the success of the changes implemented under welfare reform should be whether the well-being of children and families has improved.

Welfare reform has coincided with the longest-running economic expansion in our nation's history. Between 1993 and 2000, average annual unemployment fell from 7% to 4%.¹ At the same time, hourly wage rates for the lowest-paid workers rose, and the incentive to take a low-wage job increased substantially with expansion of the earned income tax credit (EITC). One would expect earnings to increase and child poverty to decline under these conditions. In 1999, according to a measure of poverty that includes noncash benefits and taxes, the child poverty rate fell to 13%, the lowest level since this more comprehensive poverty measure became available in 1979.²

These positive trends come with a few caveats, however. First, although the number of poor children has fallen markedly in recent years, U.S. Census Bureau data show that those who remain poor have, on average, grown poorer when the effects of tax and benefit programs are taken into account.² The poverty gap for all families with children has improved only slightly, despite the significant increase in earnings. Second, the disposable income of the poorest fifth of single mothers living just with their children (and no other adults) fell 8% between 1995 and 1999, despite increased earnings, largely because of the loss of cash welfare assistance.³ Furthermore, approximately 725,000 independent single-mother families were worse off in 1999 than were such families in 1995. In the past, welfare programs played a pivotal role in reducing the poverty gap. Now, most researchers agree that some families, especially those who left welfare without entering the labor force, are floundering.⁴

Finally, how well the new welfare programs will perform in a faltering economy remains an open question. Will states allow their caseloads to increase as more parents find themselves unemployed? Or will states institute policies that make it difficult for families to come onto the rolls? Will the federal government ensure that states have adequate resources to meet the increased need? With the economy now in recession, both the federal government and the states will need to take steps to ensure that a safety net is in place when parents—many of whom have only recently begun to work—lose their jobs.

Thus, though welfare reform clearly has resulted in positive changes for some current and former recipients, more work remains to shore up the safety net. I propose the following action items to improve TANF and related programs during reauthorization in 2002.

Increase funding substantially and ensure that states do not supplant state funds

There are several reasons for increasing the size of the TANF block grant. At a minimum, the federal TANF and state maintenance-of-effort funds should be adjusted for inflation. Additional funds will also be necessary to increase parity in the resources available to states. Currently, wealthier states have significantly more TANF dollars per poor child than poorer states have. TANF established supplemental grants to poorer states to move toward parity; more funds should be made available to continue to move toward this goal. Many policymakers point to reduced caseloads as a reason to cut TANF funding. But TANF funds have a much broader purpose than providing cash assistance for very poor families. In fact, in fiscal year 2000, less than 40% of all TANF expenditures were for basic assistance. TANF funds are used to assist parents in preparing for, finding, and retaining jobs; to fund child care and transportation services for working families and families participating in welfare-to-work programs; to support teen pregnancy prevention efforts; to operate subsidized job programs for parents who cannot find regular employment; and much more. The demand for these important services is not tied to the size of a state's cash assistance caseload. In addition, a broader range of TANF services should be targeted to two-parent families and noncustodial parents, as discussed further below.

Welfare reform has achieved a number of successes; states should not be "rewarded" for these successes by having their funds cut, in either real or inflation-adjusted terms. At a minimum, the TANF grant should not be decreased until child poverty is significantly reduced and low-income parents are working to their maximum ability. With increased funding, however, states must be more accountable for how they use their TANF block grant funds. Steps should be taken to ensure that TANF funds are used as intended and do not supplant existing state funds for programs benefiting low-income families.

Change the law's central focus from caseload reduction to poverty reduction

Reducing child and family poverty should be a principal purpose of welfare. Increases in family income are key to positive child outcomes.⁵ States should be required to explain how they will use block grant funds to address this goal, and their success in doing so should be measured.

Maintain focus on TANF adults with multiple and significant employment barriers

According to an Urban Institute study, 44% of welfare recipients reported at least two significant obstacles to work, such as limited education, no recent work experience, language barriers, mental or physical health problems and disabilities, or lack of transportation or child care, and 17% revealed three or more obstacles.⁶ The percentage of recipients reporting no work activity increased steadily with the number of significant obstacles.

Generally, if appropriate services and accommodations are available, then many parents with multiple or significant barriers to employment should be able to succeed in the workplace. For parents to accomplish this goal, however, states must consider modifying their TANF programs to address the reality that parents with multiple or significant employment barriers may need additional services and continued assistance for longer periods of time.

Revisit the federal time limit on cash assistance

Two aspects of the federal time limit need to be reexamined. First, a disconnect exists between the federal time limit and policies that encourage welfare recipients to work, including work participation requirements and policies that make work pay (such as provisions that allow welfare recipients to keep more of what they earn without changing their eligibility or benefit levels, referred to as "earnings disregards"). But recipients who work while receiving cash assistance risk triggering the time limit and becoming ineligible for benefits they may need in the future. The time limit clock should be stopped while families are working part time but not earning enough to support themselves.

Second, the number of families that can be exempted from time limits should be increased. The 1996 welfare law allows states to exempt 20% of their caseloads from the time limit. When the law was created, this equaled about 1 million families. Because caseloads have fallen so dramatically, however, states may now exempt only half as many people. More generous exemption policies should also be considered during periods of rising unemployment and for nonparent caretakers.

Provide or restore cash and other benefits to legal immigrants on the same basis as citizens

The 1996 welfare law placed far-reaching restrictions on legal immigrants' eligibility for TANF, Medicaid, food stamps, and Social Security Income (SSI). There is now strong evidence that these restrictions have had an adverse impact on many legal immigrants and their citizen children. Research shows that food insecurity increased significantly between 1994 and 1998 among the immigrant-headed households most likely to be affected by the restrictions.⁷ Food stamp participation among citizen children living with immigrant parents fell by 74% between 1994 and 1998, compared with a 24% decline among other families with children.⁸

As taxpayers, immigrants contribute not only to the funding of education, roads, and national defense, but also to safety net benefits for low-income families. They should not be excluded from these programs when temporary hardship interrupts their employment. Food stamp and SSI benefits should be restored for legal immigrants. The restrictions on states' flexibility to provide federally funded TANF and Medicaid benefits to recently arrived immigrants should be lifted.

Provide services and benefits to strengthen two-parent families and help fragile families stay together

Recent research indicates that about half of children born to single parents actually live with both of their biological parents at birth; however, as time goes on, these "fragile families" tend to separate. (See the article by McLanahan and Carlson in this journal issue.) These families need additional support to help the parents stay together and escape poverty. One concrete way to do this is to ensure that two-parent families are accessing the benefits they are eligible to receive. Currently, two-parent families participate in food stamps, Medicaid, and cash welfare assistance at a much lower rate than do single-parent families, even when their incomes are similar. According to data compiled by the Urban Institute, 40% of single-parent families with incomes below the federal poverty line receive TANF, compared with only 10% of two-parent families with incomes below the poverty line.⁹ Among families with incomes below 50% of the poverty line, almost half of single-parent families receive TANF, compared with only 13% of two-parent families. States should eliminate any barriers or eligibility restrictions that cause two-parent families to be served at much lower rates than are single-parent families. States should also take steps to reach out and serve a much larger proportion of eligible two-parent families.

Assist noncustodial parents in providing for their children both financially and emotionally

Child support can constitute a large part of families' budgets. For poor families that receive child support, it makes up more than one-quarter of their annual income, on average.¹⁰ Unfortunately, many eligible families do not receive child support, and most families do not get the full amount due to them. Noncustodial parents are a heterogeneous group; there are many reasons why they may not pay child support. Many low-income noncustodial parents do not pay child support regularly because they are unemployed or underemployed, and have limited incomes.

Many low-income families also are frustrated because when noncustodial parents pay child support while the custodial parent is receiving welfare, the government retains nearly all of the support as reimbursement for welfare costs. Little, if any, reaches the children for whom it was intended. (See the article by Greenberg and colleagues in this journal issue.) These rules need to change. When a noncustodial parent pays child support, the children should get that support, and the custodial family should benefit financially.

Earnings subsidies (like the EITC) and welfare reform encouraged more low-income mothers to enter the workplace so they could better support their children. The next step should be to help poor fathers become employed, and to address their difficulties with the child support system (including child support orders that are high relative to low-income fathers' earnings, large child support debts, and economic disincentives to pay child support). Policymakers should also consider providing government-subsidized matching payments (an earnings-like subsidy) when the child support paid by low-income dads is inadequate. Fathers need these supports so that they, too, can take more financial and emotional responsibility for their children. At the same time, the services provided to noncustodial parents should not be more generous than, or come at the expense of, programs for low-income custodial parents.

Increase participation in work support programs among low-income families

In addition to improving the safety net for the poorest families, policymakers must consider the many working families that continue to have incomes at or below the poverty line. Many of these families do not receive the benefits for which they are eligible, such as food stamps and Medicaid. Shrinking caseloads in these programs would not be so troublesome if they were the result of decreasing numbers of low-income families. Unfortunately, this is not the case—the declines in food stamp receipt, for example, have significantly exceeded declines in poverty. (See the article by Zedlewski in this journal issue.)

Research indicates that the decline in welfare caseloads may be driving down participation in other benefit programs—that is, when families are not receiving cash assistance, they may be unaware of their eligibility for food stamps, Medicaid, child care assistance, and other supports. For example, as discussed in the article by Fuller and colleagues in this journal issue, the application process for child care subsidies must be made easier, and the availability of subsidies more widely publicized. Additional housing vouchers for low-income working families should be provided, and health insurance programs for children should be expanded to provide coverage for parents, which has been shown to be key in efforts to increase the number of low-income children protected.¹¹ Reforms in these programs should be judged by their ability to increase participation among the working poor.

Improve the EITC phaseout to support low-wage work more effectively

A higher benefit level for families with three or more children should also be added to the EITC. Currently there are two tiers, or maximum benefit levels, in the EITC: one level for families with one child, and a higher level for families with two children. Families with three or more children have higher poverty rates than do smaller families, and they have experienced more difficulty moving from welfare to work. Adding a third tier to the EITC would help address these problems.

In addition, the recently enacted tax cut made the child tax credit partially refundable. Families receive a partial credit (10% now, but increasing to 15% in 2005) on their earnings over $10,000. However, for families with full-time, year-round work at low wages, this provides little assistance. The $10,000 threshold should be lowered to 0, or at least to $5,000.

In conclusion, TANF reauthorization provides an opportunity to refocus attention on the well-being of children and families. Building on the successes already achieved, we can now focus on efforts to strengthen supports for families that have left welfare for work and help them climb the economic ladder, and on efforts to provide additional resources and opportunities for families whose well-being has not improved under the first round of welfare reform.

ENDNOTES

1. Statistics from the U.S. Department of Labor Web site at www.dol.gov.



2. Center on Budget and Policy Priorities. Poverty and income trends: 1999. Washington, DC: CBPP, November 2000.



3. Center on Budget and Policy Priorities, forthcoming analysis.



4. Blank, R., and Haskins, R. Welfare reform: An agenda for reauthorization. In The new world of welfare. R. Blank and R. Haskins, eds. Washington, DC: Brookings Institution Press, 2001, pp. 3–34.



5. Sherman, A. How children fare in welfare experiments appears to hinge on income. Washington, DC: Children's Defense Fund, August 2001.



6. Zedlewski, S. Work activity and obstacles to work among TANF recipients. Washington, DC: Urban Institute, September 1999.



7. Borjas, G.J. Food insecurity and public assistance. Unpublished paper. Cambridge, MA: Harvard University, May 2001.



8. Unpublished tabulations of food stamp quality control data, 1994 and 1998, prepared by Center on Budget and Policy Priorities.



9. Beeson, J., and Primus, W. Safety net programs, marriage and cohabitation. In Just living together: Implications of cohabitation on families, children, and social policy. A. Booth and A Cronter, eds. Mahwah, NJ: Lawrence Erlbaum Associates. In press.



10. Sorensen, E., and Zibman, C. Child support offers some protection against poverty. Washington, DC: Urban Institute, March 2000.



11. Ku, L., and Broaddus, M. The importance of family-based insurance expansions: New research findings about state health reforms. Washington, DC: Center on Budget and Policy Priorities, September 2000.