Red Ink Update: September 6, 1996

Update for September 6, 1996.

The Welfare Reform Act of 1996

[Note: The interpretation below is the author's, based upon the text or Public Law 104-193 and sections from Titles 7, 8 and 42 of the United States Code which are amended by this law. This material is subject to revision.]

This text describes the salient features of the HR 3734, the Welfare Reform Act of 1996, now Public Law 104-193, signed into law on August 22, 1996. As can be seen in the discussion below, some of the program limits and restrictions are a little more subtle or qualified than was typically reported in the press in the weeks after passage of the law. The complexity of the old procedures and new law arises from three circumstances:

  1. most welfare programs are jointly administered by federal and state and local governments,;

  2. the larger federal programs can be divided into five major programs, (1) the Food Stamp program, (2) Nutritional Assistance programs, (3) the old Aid to Families with Dependent Children (AFDC) program, now called the Temporary Assistance for Needy Families (TANF) program, (4) Supplemental Security Income (SSI), a relief program for the aged, blind, and disabled, and (5) Housing and Energy Assistance programs;

  3. these programs, in turn, are subject to different committee jurisdictions with somewhat different philosophies on welfare reform and they all contributed to the omnibus welfare reform bill. Because of this, one of the programs, the old AFDC cash assistance program for impoverished families with children, under the primary jurisdiction of the House Ways and Means Committee, has been radically revamped, whereas the other programs, under the jurisdiction of other committees such as the House Committee on Agriculture, were changed very little.

Major Provisions of Public Law 104-193

  1. Changes AFDC from entitlements status to block grants - Specifically, the law eliminates the old Aid to Families with Dependent Children (AFDC) program, operated as an entitlements program, with the new Temporary Assistance for Needy Families (TANF) program, funded as a block grant program. This was the most far-reaching change in the law. The block grants come with numerous and substantial provisions and restrictions, many of which are described elsewhere in this document. Additionally, block grants are provided for some smaller programs. The Food Stamp, Medicaid, nutritional programs such as the School Lunch program and nutritional aid to women, infants and children (WIC), and most housing programs remain as entitlements and have not been converted to block grants.

    Qualifications, exemptions, exceptions: As stated, the new law does change the AFDC program from an entitlements program to a block grant program. There are some subtle qualifications to this feature, though. First, rather than replace altogether the entitlements status of the program, the law effectively removes it at the federal level and places it at the state level. To receive a block grant, each state must submit a comprehensive child-based welfare plan that will entitle qualified families to benefits. Such plans will differ from one state to another, but that was also true under AFDC. Second, the old AFDC was a state grant program just like the new one. The old AFDC differed from the new TANF in that the latter caps the size of the federal contribution by a formula based upon prior payouts to individual states since 1992 and is subject to annual appropriations. The amount of TANF funding is expected to be a little above $16 billion annually, as compared to $17.3 for FY1995 AFDC funding. AFDC outlays were not capped nor subject to annual appropriations - they were determined by the level of federal entitlements, which in turn was determined in part by the size of the caseload. This difference is what makes the TANF arrangement a "block" grant instead of just a grant. If some states with large welfare populations fall short on this funding, now capped, they will have to make up the difference themselves. Of course if states successfully move people off of welfare because of changes in entitlements at the state level or because of the new time limits and work requirements described below, this won't happen.

  2. Places time limits on some welfare benefits -Limits family assistance from the new TANF program (the old AFDC program) to five years (60 months) total cash assistance over a lifetime. TANF requires that the "family" receiving assistance include a minor child or pregnant woman.

    Qualifications, exemptions, exceptions: The 60-month lifetime limit means a limitation of 60 months of benefits to the head of the family in question and may be paid intermittently - it is not a limit of five calendar years from the date of the first benefit paid. This limit does not include the Food Stamp program, child nutrition programs, nor Medicaid. Because time on welfare prior to the law going into effect is not counted, no family will reach this limit until the year 2002. Under prior law, it appeared that about one-third of all families exceed 60 months of benefits.

  3. Imposes work and/or training requirements - The new law generally imposes stiff work requirements for welfare recipients who receive benefits from the new Temporary Assistance for Needy Families (TANF) program, which replaces the old AFDC program. The law imposes requirements on aid recipients and the states that administer the aid. Generally, the law requires "parent or caretaker" (hereafter caretaker) adult recipients of TANF aid to engage in work or some specified job search or training activity after 24 months of receiving aid (whether or not consecutive), or even sooner if the state determines that the caretaker is "ready to engage in work." To be engaged in work or suitable training, the caretaker must work at least part-time for a minimum number of hours per week specified by the law on a sliding scale - in FY 1997 the minimum work week is 20 hours but by FY 2000 and thereafter the minimum is set at 30 hours per week. For two-parent families, one parent must work at least 35 and the other 20 hours per week, the latter only if the family receives federally-funded child care assistance.

    The individual states also must meet requirements in forcing recipients to work. On an escalating scale, states are required to have 50% of all families and 90% of two-parent families engaged in work by the above criteria by FY 2002 (because of new entrants into TANF programs and the 24-month exemption, these participation rates could never hit 100%). States that fail to meet these targets can be penalized with reduction in federal TANF grants according to formulas specified by the new law. Additionally, for each case, the state is also required to work with the beneficiary to develop an Individual Responsibility Plan which will set targets for education and/or employment and describe services to be provided by the state. In such a plan, the state may also require the individual to undergo substance abuse treatment. Finally, all state work programs and programs to reduce out-of-wedlock births will be ranked by the Secretary of the Department of Health and Human Services and the best and worst will be reviewed.

    Qualifications, exemptions, exceptions: The TANF work requirement defines work to be private or public work, subsidized or unsubsidized. Acceptable job search and training activities, none of which can permanently replace actual work, include (a) direct job search (6 weeks only), (b) on-the-job training, job preparation training, or job skill training but only if directly related to employment, (c) enrollment in high school program if it leads to a Certificate of General Equivalency (High School Degree), (d) teenage head of household still enrolled in high school and making ordinary progress, or (e) community service programs. The latter option, potentially a make-work loophole, might be where a lot of TANF recipients end up if real jobs are not available. Notably, the law does not allow attendance at a college to substitute for work activity. The law also has a displacement provision - no established employee may be laid off for the purpose of creating a vacancy for a TANF beneficiary. The TANF assigns higher work-requirement priority to two-parent families, which might encourage families to break up. The viability and effect of the new work requirements are further discussed at the end of this document.

    The Food Stamp program also has stiffer job training, job search and work requirements than before, but they are eclipsed in their scope by the tough TANF requirements.

  4. Elimination of immigrant welfare benefits - Disallows any federal funding for most types of public assistance for illegal aliens (immigrants). Legal aliens are denied benefits outright for Supplemental Security Income (SSI - a need-based entitlements program mostly for elderly, blind, and disabled) and Food Stamps. For TANF (old AFDC) and Medicaid benefits, the federal law does not deny benefits to legal aliens, but it does not grant them either - it leaves the determination of eligibility to the individual states, though the federal law imposes a 5-year waiting period even for TANF and all other federal relief. For legal aliens, there are no benefit restrictions for National School Lunch and Child Nutrition programs, education programs in general, and the medical costs of immunization, communicable diseases, and emergency medical care.

    Qualifications, exemptions, exceptions: The old law prevented immigrant agricultural workers and immigrants with temporary visas from collecting most federal benefits for a period of five years (see 8 USC 1160 (f) and 8 USC 1255a (h)).

    Under Title IV or Public Law 104-193, Medicaid benefits for legal aliens are denied for five years and may be indefinitely denied by the states. However, under a last-minute addition to the law demanded by the Clinton administration, Title I, Sec. 114 requires introduction of later legislation assuring Medicaid coverage, though it does not require passage. The most likely outcome is that Medicaid coverage will remain as it has been until Medicaid itself is reformed, if that ever happens. Regardless, emergency medical treatment, public health immunization, and treatment of communicable diseases are still authorized under Public Law 104-193, though the law is not clear on the federal role in funding such health treatments. These health exemptions do not appear to include maternity benefits. States and local governments may still provide welfare benefits to aliens, but at their own cost. Since larger states like New York and California with large immigrant populations are not likely to discontinue all of these benefits, there might be a sizeable shifting of cost from the federal to state and local level, which implies that taxpayer in those states will realize much less of a tax benefit from program savings.

Minor Provisions of Public Law 104-193

  1. The law includes language that makes it appear that the intent is to improve the establishing of paternity of children born to unwed mothers and the enforcement of child care payments from fathers not with the family. The new law, however, is not much different from the old superseded AFDC law (42 USC Sec 602 (26)) which required the same thing.

  2. The law provides substantial funding for child care assistance, certainly necessary if the back-to-work provisions of the new law have any hope of succeeding. Under two separate programs, the child care federal funding grants to states range from about $3 billion in FY1997 to $3.7 billion in FY2002.

  3. Again reflecting the Congress' flair for strange new savings accounts, the law also authorizes the creation of personal Individual Development Accounts by the recipients of TANF relief. These are savings accounts that may be used college education, first home purchase, or business capitalization. The welfare recipient must make a deposit in this account and states and charities have the option of providing matching funds. Since people on welfare don't have the means to save much, it's hard to imagine that this provision of the law will play much of a role in welfare reform.

Author's Assessment of Public Law 104-193

Some of the features of Public Law 104-193 are likely to become permanent, but this is not likely to be the last word on welfare reform. For one thing, the law does a great deal of restricting and limiting without having much of a plan, not to mention adequate funding, for helping people move into real jobs through training and job placement activities. Total funding for training within the law is set at less that $100 million annually, a pittance. Though the unemployment rate is fairly low in the mid-1990s, the capacity of the economy to create millions of new low-end jobs for welfare recipients is extremely doubtful. Under a literal interpretation of the law, around 5 million people, possibly more, will have to moved into jobs over the next few years. Even when the economy is operating at full capacity and growing quickly, it only creates about 3 million new jobs annually (and far fewer in slow years or recessions), and only a fraction of these new jobs are suitable for people on welfare. And again, it must be remembered that the law explicitly states that no one presently employed can be pushed out of a job in the effort to place welfare recipients in the job market, so the new jobs have to be net new additions. The problem will be especially acute in cities with huge pockets of welfare, such as Washington, D.C. or Los Angeles. It is estimated by many critics that the law will likely push a large number of people, including children, deeper into poverty.

Additionally, the capacity for caseworkers to adjust to the new, complicated procedures for review and compliance, especially with insufficient funding for training, is greatly in doubt. This law imposes a tremendous burden at the operational level, at least in the early years of the program while imposing most of the cost and management of the transition on the individual states and their budgets.

The final budgetary effects of the law are open to question as well. TANF block grant outlays are expected to be set at just a little above $16 billion annually, without rising. This compares to $17.3 billion for the old AFDC program in FY1995. Food Stamp outlays are trimmed slightly as well, and additional savings are realized by restricting benefits extended to aliens. The law is supposed to reduce federal outlays altogether by between $50 billion and $60 billion between passage of the law and FY2002, which is a rather modest amount given the scope of the law (it's only about $10 billion per year). This gain will be diminished however by the impact of law at the state and local level. Some states will be reluctant to develop absolute "turn-away" policies for certain classes of welfare recipients (especially aliens in states where the alien labor force is very important) simply because federal funding is cut off or restricted. Loophole provisions in medical care (allowing treatment for "emergencies" only, which means that everything becomes defined to be an emergency) may actually raise rather than lower medical costs. For these reasons and others, this is not the final chapter in welfare reform.

© Gary Evans, 1996. This material may be quoted without the author's permission.

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