Statement of Sidonie Squier, Director of the Office of Family Assistance, Department of Health and Human Services

Testimony Before the Subcommittee on Income Security and Family Support
of the House Committee on Ways and Means

March 06, 2007

Mr. Chairman, Mr. Weller, and members of the Subcommittee, I am pleased to appear before you today to discuss the next phase of welfare reform.  I would like to take this opportunity to express my thanks to you, Mr. Chairman, for your leadership and to the Committee for your continued efforts to reform the welfare system and improve the lives of low-income Americans.

Temporary Assistance for Needy Families

The enactment of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 has had a profound, positive impact on our nation’s vulnerable families.  In particular, the Temporary Assistance for Needy Families program – TANF – is a remarkable example of a successful Federal-State partnership.  With heightened expectations of personal responsibility and greater opportunities for improving their economic circumstances, millions of families have moved from dependence on welfare to the independence of work.  We have provided the necessary work supports, child care, and transportation to ensure that parents can get to work and stay there without worrying about the safety and well-being of their children.  Many observers now consider the creation of TANF just over 10 years ago as one of the greatest social policy achievements in American history.  Of particular significance since 1996:

• Welfare rolls have declined by 60 percent between August 1996 and September 2006, from 4.41 million to 1.76 million families.  The number of families on welfare is now lower than at any time since 1969. 
• Unprecedented numbers of former recipients have gone to work.  Employment among single mothers has increased.  The percentage of never-married working mothers increased from 49.3 percent in 1996 to 62.0 percent in 2005.
• Child support collections have nearly doubled.
• Overall child poverty rates declined from 20.5 percent in 1996 to 17.6 percent in 2005, with 1.6 million fewer children in poverty.  The poverty rate among African American children declined from 39.9 percent to 33.5 percent.  The poverty rate among Hispanic children declined from 40.3 percent to 28.3 percent.  Although the poverty rate has increased some since 2000 as a result of the 2001 recession, the addition of nearly 7.5 million new jobs since August 2003 portends favorably for renewed improvement in poverty rates.
• Out-of-wedlock childbearing among African-American teens has declined nearly 20 percent from 1996 to 2005.
• The unwed birth rate for all teens age 15-19 has declined since its peak in 1994.

Despite TANF’s successes, and indeed, because of them, it was time to renew welfare reform.  The key to the success of welfare reform was work.  In theory, since FY 2002 the minimum work participation rates had been 50 percent for all families and 90 percent for two-parent families.  But because the statutory rates were reduced by the percentage of caseload decline since FY 1995, in practice States needed very little work participation from their caseload to meet these adjusted work standards.  As a result, in FY 2004, 17 States and two Territories faced an effective overall participation rate of 0 percent, and nationally the effective participation rate was only 6 percent.  Only 32 percent of TANF families with an adult participated for enough hours to count and almost three-fifths of TANF adults had no reported hours in work activities, nevertheless using up their time-limited benefits.  It was time to reverse this trend so that all TANF recipients would have the opportunity to become self-sufficient.

The Deficit Reduction Act of 2005

The Deficit Reduction Act of 2005 (DRA) reauthorized the TANF program through fiscal year 2010 with a renewed focus on work, program integrity, and strengthening families through marriage promotion and responsible fatherhood.  Signed into law by President Bush on February 8, 2006, the DRA maintained State flexibility, retaining many provisions of the original TANF law, but included important changes to improve the effectiveness of the program.  

What Stayed the Same?

The Deficit Reduction Act kept nearly all of the TANF provisions enacted in the original welfare reform law.  Of particular note, the law retained the requirement that a State must achieve a 50-percent overall work participation rate by engaging adults in the 12 allowable work activities for specified hours each week and that it must also achieve a 90-percent two-parent rate by similarly engaging families in work activities for certain, specified hours.  The work activities and the hours needed to count a family toward the work participation rates also did not change.  The DRA maintained the penalty associated with failing to meet these work requirements. 

The DRA also maintained other key provisions of prior law.  It:

• Fully funded the TANF block grant through FY 2010 at $16.6 billion per year.
• Continued to require States to make maintenance of effort (MOE) contributions to support families and children.
• Preserved the $2 billion Contingency Fund to help States in the event of an economic downturn or recession.
• Extended the Supplemental Grants for the 17 States with historically low grants per poor person and/or high population growth in the amount of $319 million through FY 2008. 
• Retained the five-year cumulative lifetime limit on Federal TANF cash assistance to ensure that welfare is temporary and does not become a way of life.

What Changed?

Despite the fact that it retained the existing structure and many fundamental aspects of the original TANF law, the DRA did make important statutory changes to promote work and accountability by requiring States to engage more TANF families in productive work activities leading to self-sufficiency.  The new law also required HHS to promulgate rules in several of these areas. 

First, the law changed the base year of the calculation of the caseload reduction credit from FY 1995 to FY 2005.  The caseload reduction credit had inadvertently undermined TANF work requirements.  While the statutory work participation rates did not change, recalibrating the caseload reduction credit has the effect of increasing the work participation requirements.  Without the benefit of the built-up credit, States must engage 50 percent of all cases with adults and 90 percent of two-parent families in work activities.  For most States, we estimate that in FY 2007, the overall work participation requirement will be between 40 and 50 percent, depending upon the amount of caseload reduction they had over the course of FY 2006 compared to the new baseline of FY 2005. 

Second, the law included in the work participation rates families in separate State programs, which were previously excluded from the rates.  Under prior law and rules, some States moved families to programs essentially identical to their TANF programs but funded with State money used toward the MOE requirement.  In such cases, these separate State programs artificially diminished the true size of a State’s caseload, thus increasing a State’s participation rate through a simple shift in funding streams.  Now, those families are part of the participation rate, giving a more realistic picture of the State’s work achievement with its whole caseload.

Third, the law eliminated provisions for the High Performance Bonus and the Illegitimacy Reduction Bonus and replaced them with a $150 million-a-year research, demonstration, and technical assistance fund.  This fund is for competitive grants to strengthen family formation, promote healthy marriages, support responsible fatherhood, and improve coordination between Tribal TANF and child welfare services.  We know that programs and solutions work best when they are designed to address local needs.  These funds will enable neighborhoods, community, and religious groups to try innovative approaches to encourage healthy marriages and promote involved, committed, and responsible fatherhood. 

Fourth, the DRA expanded a State’s ability to meet its maintenance-of-effort (MOE) requirement.  States may now count expenditures that provide pro-family benefits and services to anyone, without regard to financial need or family composition, if the expenditure is to prevent and reduce the incidence of out-of-wedlock births (TANF purpose 3), or encourage the formation and maintenance of two-parent married families (TANF purpose 4). 

Fifth, it increased Federal child care funding by $200 million per year, $1 billion over five years. With the inclusion of State matching funds required to draw down these additional dollars, new funding for child care totals $1.8 billion over five years.  This expanded support for child care, despite dramatically smaller TANF caseloads across the country, means that the DRA’s renewed focus on work can be put in practice in the labor market, ensuring that TANF recipients can find and keep employment without having to worry about child care needs.

Congress also required HHS to do a number of things through regulation:

• To define each of the 12 countable work activities.  This came about primarily because a U.S. Government Accountability Office study reported that there was great variation in State definitions of work activities.  As a result, State participation rates were not comparable.  Of the activities, the underlying statute also specified which nine or “core activities” count towards meeting the first 20 hours of a 30-hour requirement.  Any additional hours needed to meet the requirement can come from any of three “non core activities” or from “core activities.”  Under the statute, non-core activities may not count in core hours.   
• To clarify who is a work-eligible individual.  In addition to families with an adult receiving TANF assistance, who were already a part of the work participation rates, the DRA required us to include such families receiving assistance under a separate State program and to specify the circumstances under which a parent who resides with a child receiving assistance should be included in the work participation rates.  This effectively adds selected child-only cases to the rates.
• To ensure that State internal control procedures result in accurate and consistent work participation information.  States must establish and maintain work participation verification procedures that are based on regulations promulgated by the Secretary.
• To establish a new penalty in the event that a State fails to establish and maintain adequate procedures to verify reported work participation data.

The Interim Final Rule

On June 29, 2006, HHS issued an interim final rule implementing key provisions of the DRA.  During the comment period we received many comments on those regulations including 470 individual letters; some were lengthy submittals addressing a host of different specific topics.  Comments also included transcripts from five listening tour stops that we conducted around the country last summer.  These sessions offered an opportunity for representatives from State agencies, legislators, and other stakeholders to provide formal comments and to engage in a dialogue with ACF staff about the law and interim rules.  We are now considering all the comments we received during our formal comment period and are not at liberty to discuss the specific aspects of how the final regulations may or may not change in response to those comments.  However, I would like to say a few words about the interim final rules and would be happy to answer questions specifically about them.

The interim final regulations have five key components.  Within each area, the rules provide States expanded flexibility to help meet their work participation rates and other requirements of the law.

First, they create uniform, common-sense definitions of work that count only those activities that actually help move people into real jobs.  These new definitions are necessary because the 1996 TANF legislation allowed each State to define “work,” which may have allowed for inconsistent calculations of work participation rates.  Some States included activities in their definitions of work activity that others did not, such as:

• Bed rest;
• Physical rehabilitation, which could include massage and regulated exercise;
• Activities to promote a healthier lifestyle that will eventually assist the recipient in obtaining employment, such as personal journaling, motivational reading, and weight loss promotion;
• Helping a friend or relative with household tasks and errands.

It is important to remember that the DRA did not instruct HHS to add, delete, alter, or change these 12 activities.  Nor did Congress direct HHS to comment on the completeness of this list or whether some core activities should be non-core activities.  Defining work activities is necessary for consistent measurement and ensures an equitable and level playing field for the States.  Because the statute provides 12 distinct activities, we tried to define them as mutually exclusive, while still leaving flexibility for States to address the critical needs of families.

Here are some examples of the new definitions in the Interim Final rule:

• “Employment” is defined as full- or part-time paid work.
• “Work experience” (or working “off the grant”) means performing work for an employer that provides job skills and work habits in exchange for the TANF grant.
• “Job search and job readiness assistance” means seeking or preparing for employment which could include short-term substance abuse treatment, mental health treatment, or rehabilitation activities.
• “Community service” is structured work that directly benefits the community via public or nonprofit organizations.
• “Vocational educational training” means training that is directly related to employment that does not require a college degree, but which could include remedial and basic education in a work context.

These definitions clearly tighten the focus on work.  For example, they require daily supervision in all activities used to satisfy work requirements.  They also require that education and training activities relate directly to a specific job or occupation. 

At the same time, they also allow States to count participation in activities that many States previously did not count.  For example, the interim final rule included as part of the definition of job search and job readiness assistance, substance abuse treatment, mental health treatment, and rehabilitation activities for those who are otherwise employable.  Although a few States included some or all of these activities in the past most did not count participation in such treatment or services toward the participation rates before.  (A review of State plans by the Congressional Research Service found that just 14 States counted these activities at all and five of them did so as part of the job search and job readiness assistance activity.)  Job search and job readiness assistance is a time-limited activity under the law, so States cannot get participation credit for them without limit, but from what we have heard, many more States than ever did before will be counting these activities now that we have added them to the definition.  We included them as job readiness activities (as opposed to some other activity that is not subject to a time limit) because it was the only place we thought it made sense to include them.  In fact, these services do help individuals become ready to work and thus fit well within that work component.

Second, the new regulations require uniform methods for reporting hours of work, as required by the DRA.  They allow States to count only actual hours of participation, but, for the first time in the history of the TANF program, the interim final rule grants States credit in the work participation rates for holidays and additional excused absences for individuals in unpaid activities.  The original TANF rules that came out in 1999 let States count paid leave days as participation, but not unpaid days or days in unpaid activities.  This is a significant change from past policy and will make it considerably easier for States to meet the work participation rates.

Another new innovation that enhances State flexibility in meeting work participation rates is the provision in the interim final rule for “FLSA deeming.”  Under this provision, if a work-eligible individual participating in work experience or community service program – two activities that are subject to the minimum wage under the Fair Labor Standards Act – works the maximum hours permitted without incurring a minimum wage violation under that law but falls short of the hours needed to meet the TANF core activities requirement, we “deem” them to have met that requirement.  This is likely to be particularly important for families in the two-parent rate, since the hours requirement is higher there.

Third, the new regulations specify the type of documentation needed to verify reported hours of work and require daily supervision.  Daily supervision means that a responsible party has daily responsibility for oversight of the individual’s participation, not necessarily daily contact with the participant.  The goal of such supervision is to ensure that individuals are participating and making progress in their assigned activities.  A work site sponsor, classroom instructor, contracted service provider, community-based provider, job search instructor, treatment provider, or even a TANF agency employee could fulfill that role.  In addition, the supervision need not involve in-person contact, but can be by telephone or electronic contact where those methods are suitable. 

We established a range of documentation guidelines that vary by type of activity.  We believe the rule provides a reasonable balance between the need for accurate information and the burden of reporting and verifying hours of participation.  In particular, we have allowed States to project up to six months of actual employment, reducing the documentation burden for an activity that has accounted for over half of all countable hours of participation under TANF.  For unpaid activities, we allow States to document reported information through attendance and time sheets of providers and other methods beyond client self-reporting, requirements that have been a part of the program all along.  It is important to recognize that States have always had to document work participation hours and most have used sources such as these, so we think these new regulations do not pose a special or new burden on States, employers, or clients.

Fourth, the new regulations broaden the pool of individuals subject to the State work participation requirements by determining the circumstances under which a parent who resides with a child receiving assistance should be included in the work participation rates.  This means that States must include certain child-only cases, primarily individuals in about a dozen States that remove the parents’ “needs” from the grant due to a sanction or time limit.  The rules include a case-by-case State option to include a parent who receives Supplemental Security Income (SSI) and works or participates in the Ticket to Work program.  The vast majority of child-only cases remain exempt from work participation requirements, including those headed by

• Grandparents and other non-parental caretakers;
• Undocumented immigrants and immigrants under the five-year ban;
• Parents receiving SSI who are not included under the State option.

Under our interim final rule, we excluded from the definition of “work-eligible individual” a parent providing care for a disabled family member living in the home who does not attend school on a full-time basis, as long as the need for such care is supported by medical documentation.  This means that families that include such individuals are not part of the participation rate.  Again, this is an area where we expanded State flexibility.

Finally, the new regulations require States to establish and maintain work participation verification procedures and internal controls to ensure compliance with the procedures.  They also require States to have in place by September 30 of this year a Work Verification Plan to validate work data and implement new penalties for non-compliance with work verification procedures starting October 1, 2007.  The penalty consists of a one percent reduction in the State grant for each year a State is out of compliance, up to a maximum penalty of five percent.  The full five percent penalty will be imposed if a State fails to submit a Work Verification Plan.

Eliminate the Two-Parent Rate

I would like to remind the Subcommittee of another critical point.  The Administration has proposed ending the separate participation rate for two-parent families; the same participation rate would apply to both single-and two-parent families.  This would remove a disincentive to equitable treatment of two-parent families.  Under current law, two-parent families have a far more rigorous work participation rate requirement than do single-parent families (90 percent compared to 50 percent).  Less than five percent of TANF and SSP families are two-parent families.  However, if a State meets its overall work participation rate but fails the two-parent rate the law requires that a State must meet an 80-percent maintenance of effort requirement, causing a State to spend significantly more.  We believe that attaining a 90-percent participation rate for two-parent families poses substantial challenges for States and presents potentially significant administrative hardships.  Even if this rate were eliminated, the family would still have an adult required to participate constructively and at levels that would lead to self-sufficiency.

Meeting the Challenge

We understand and acknowledge that helping States increase the number of welfare recipients participating in work activities will be a challenge.  Some question whether it can be done.  We believe that this challenge is not only feasible, but must be met if we are to continue our progress in reforming welfare and moving families to self-sufficiency.  A fair and objective evaluation of this challenge is necessary.  Such an evaluation should consider a range of relevant factors including the following:   

• What States achieved in 2005 does not determine what they can achieve in the future.  When States have a zero or near-zero work participation requirement, they operate programs within that context.  If they have a higher work participation requirement, they will operate their programs accordingly.

• Existing participation data understate the actual level of participation.  Some States do not report all participation that could count because they have already satisfied the participation requirements due to the caseload reduction credit.  Data from the National Directory of New Hires (NDNH) indicate that more TANF adults are employed than is reported.

• It is possible for States to achieve rapid increases in their work participation rates.  In two years, Georgia raised its work participation rate from 10 percent to 57 percent.  This came about once the State made a concerted effort to increase participation rates.

• States have the resources to do the job.  The dramatic decline in welfare caseloads since the 1996 welfare reform has produced savings that far exceed any additional costs from new work requirements.  For example, TANF funding, measured on a per TANF family basis, was $9,100 in 1996 (inflation-adjusted) compared to $15,977 in 2007 (projected), an increase of $6,877 per family, representing a 76 percent increase in capacity to meet the challenge of welfare reform.

• If caseloads continue to decline, even the new “recalibrated” credit can substantially reduce the required participation rate target.  Based on a preliminary estimate of the caseload reduction credit for FY 2007, the average target for FY 2007 will be reduced to 45 percent, and in 12 States the new target will be under 40 percent.

• Meeting work participation requirements will increase employment and further reduce caseloads, freeing up more TANF funds that could be used for work activities and child care.

• Finally, since 1996, Federal and State spending for child care in just these programs – TANF, CCDF, and SSBG – has increased more than 3 fold from $3.6 billion in 1996 to $11.7 billion in 2006.

In summary, we sincerely believe that virtually all States have the flexibility they will need to meet the new work participation requirements.  We hope that they do this by helping needy families find appropriate work activities and increasing support services to them. 

Conclusion

Mr. Chairman, I’m sure you will agree with me that it is our shared desire to improve the lives of the families who have or would otherwise become dependent on welfare.  In his second inaugural address, President Bush stated that in America’s ideal of freedom, citizens find the dignity and security of economic independence.  He expressed the vision of an ownership society, making every citizen an agent of his or her own destiny.  These ideals certainly fit within the reauthorized welfare program.  Secretary Leavitt, Assistant Secretary Horn, and I stand ready to work with you and our State and community partners to make economic independence within reach of America’s neediest families.  I would be happy to answer any questions you have.