Statement of Wendell Primus, Director, Income Security,
Center on Budget and Policy Priorities

Testimony Before the Subcommittee on Human Resources
of the House Committee on Ways and Means

Hearing on Welfare Reform Reauthorization Proposals

April 11, 2002

Thank you, Mr. Chairman, and members of the Committee, for the opportunity to testify before you today. I am Wendell Primus, Director of Income Security for the Center on Budget and Policy Priorities. The Center is a non-profit institute that conducts research and analysis on policy issues affecting low- and moderate-income families at both the state and federal levels. We receive no government funding.

My testimony will briefly review the experience of welfare reform over the last six years, then analyze the Chairman's TANF reauthorization bill in light of what research and state experience have shown to be effective in moving families from welfare to work. Finally, I will outline a work-focused alternative plan that would allow states to address some of the remaining challenges of welfare reform by building on current successful state-based approaches.

The Experience of the First Six Years of Welfare Reform

Nearly six years ago, Congress passed legislation that dramatically altered the basic safety net for low-income families with children. The Aid to Families with Dependent Children (AFDC) program, which had existed for 60 years, was dismantled, and a new block grant -- Temporary Assistance for Needy Families (TANF) -- was put in its place.

States used their block funds to design programs that capitalized on the strong economy and moved welfare recipients into private-sector jobs. As cash assistance caseloads tumbled and the economy surged, employment rates among single mothers rose significantly, continuing a upward trend that began in 1993. While clearly playing a role, the law's work requirements were not the only factor in this increase. States were able to use TANF funds to create an expanded system of supports for low-income working families. In addition to helping families leave welfare, these supports, including child care, transportation assistance, and state earned income tax credits, have helped low-wage workers avoid going on to welfare in the first place. Besides TANF, other federal programs, including Medicaid, the Earned Income Tax Credit, and the Child Care and Development Block Grant (CCDBG) -- all expanded in the 1990s -- are part of this work support system.

The extent to which TANF has been transformed into a work support system is reflected in state spending patterns and the number of families served in TANF that do not receive welfare. Fewer than 4 out of every 10 TANF dollars are now spent on cash assistance. ⁽¹⁾ The largest share of the remaining dollars is spent on child care and other work supports. It is important to note that the work support system funded by TANF extends beyond welfare recipients to low-income families who have left welfare and those who have never received welfare. Unfortunately, there is no official count of the number of families who receive TANF-funded work supports outside of the welfare system. However, recent GAO data suggest that at least 1 million non-welfare families -- and quite likely many more -- receive work supports funded in part with TANF. ⁽²⁾ Thus, the number of non-welfare families receiving TANF-funded work supports is likely as large, if not substantially larger, than the number of families receiving cash assistance who are subject to TANF work requirements. ⁽³⁾

While states have made substantial progress on the employment front in the last few years, the reduction in poverty has been much more modest than the reduction in TANF caseloads or the increase in families with earnings. Trends in the "child poverty gap" provide strong evidence that this is due in part to the large reductions in the amount of cash assistance and food stamp received by eligible families. (The child poverty gap, which many analysts consider the single best measure of child poverty, is the total amount by which the incomes of all poor children fall below the poverty line.)

Before counting means-tested programs, the child poverty gap declined substantially between 1995 and 2000, just as it had between 1993 and 1995. The drop in the child poverty gap, as measured before means-tested benefits are counted, primarily reflects the effect of the economy in reducing child poverty through increases in employment and earnings among parents. But when the benefits of means-tested programs (and federal tax policy) are taken into account, the picture changes.

While the gap still shrunk -- by $3.6 billion between 1995 and 2000 -- this was much more modest than the $7.4 billion drop that occurred between 1993 and 1995, even though pre-transfer poverty fell nearly twice as much during the later time period. ⁽⁴⁾ These data strongly support the conclusion that poverty could have fallen at a faster rate between 1995 and 2000 if declines in the numbers of children receiving means-tested benefits had not been as sharp.

There appears to be broad bipartisan consensus in Washington and among states that an important goal of the next five years of welfare reform is to enhance child well-being, which includes reducing the extent and depth of poverty among families with children. Meeting this goal will require moving beyond welfare reform's initial focus on caseload decline -- a move that many states are already in the process of making. In addition, most agree that further progress on this goal will require addressing the following challenges:

• Helping TANF Recipients Who Have Severe "Barriers" to Employment that Impede Their Progress in Moving toward Self-sufficiency: While there are significantly fewer families on welfare, a recent General Accounting Office study found that 38 percent of them have a severe physical or mental health impairment. Studies have found that these and other barriers -- including domestic violence, lack of stable housing, and having a disabled child -- significantly reduce the likelihood of working. In order to make these families part of welfare reform's success, we need to be realistic about what it is going to take to get them from where they are today to where they need to be, and ensure that states have the resources and flexibility to work with them intensively towards that goal.

• Doing More to Help Recipients Find Better-paying and More Secure Jobs that Can Support a Family: TANF recipients typically end up in low-paying jobs -- most earn less than $8.00 an hour and many earn significantly less than that. Data from studies of parents who left welfare for work show that median quarterly earnings for families that left TANF and were working were typically between $2,000 and $2,500, roughly 33 percent below the poverty level for a family of three. ⁽⁵⁾ Earnings do grow after leaving welfare, but they still remain quite low even years later. A Wisconsin study that tracked welfare leavers in that state found that nearly 60 percent had below-poverty-level incomes even three years after leaving welfare. ⁽⁶⁾

• Strengthening Families: Several "family formation" trends have taken a positive turn in recent years. The teen birth rate has fallen significantly since the early 1990s. The share of children, particularly low-income children, living in two-parent families increased while the share living in single-parent families fell. The number of paternities established soared in the 1990s and amount of child support collected in the federal-state child support system increased dramatically. While these statistics are heartening, there is further progress to be made on all of these fronts.

States have begun to fine-tune their TANF programs to address these issues, but much more could be done to improve outcomes for families in these areas. TANF reauthorization should address these challenges by building on current effective state strategies where they exist, and supporting research and demonstrations to develop a knowledge base on which to build future successful programs.

The Work Provisions in H.R. 4090

H.R. 4090 includes a far-reaching set of changes to the work provisions in the TANF law. The most significant changes are to TANF's participation rate structure under which states must place a certain percentage of families in federally-authorized work activities or face fiscal penalties. The proposed legislation makes the following changes to the participation rate structure.

• States would have to place 70 percent of TANF families in specified work activities by fiscal year 2007, up from 50 percent in the current fiscal year.

• The current caseload reduction credit -- which reduces state participation rates by 1 percentage point for each 1 percentage point reduction in caseloads since 1995 -- would be replaced with a "rolling" credit. Instead of being based on the reduction in caseloads since 1995, a state's participation rate would be determined each fiscal year based on the percentage reduction in the state's caseload in the three preceding fiscal years.

• To count fully toward the rate, families with children age 1 or older would have to participate in work activities for 40 hours a week. This change would double the number of hours required for parents with children under age 6 and increase by 10 hours a week the number of hours required for other families.

• The work activities that count toward the first 24 hours of the work requirement would be narrowed to paid work (unsubsidized and subsidized employment, and on-the-job training) and unpaid work (work experience programs and supervised community service). States would be able to count families placed in substance abuse, rehabilitative activities, work-related training, and job search or job readiness assistance, but for no more than three consecutive months in any 24-month period.

Instead of addressing the remaining challenges by building on current state strategies to help families overcome barriers to employment and find better jobs, the proposed legislation would curtail state flexibility and effectively require all states to adopt a federally proscribed welfare-to-work program structure. States would be forced to restructure their current programs and abandon many of the successful strategies they currently use to help parents prepare for, find, and retain employment in favor of more costly programs. Such a change might be warranted if states had clearly failed to implement effective welfare-to-work programs over the past few years, or if there were research evidence showing that the proposed approach was more effective at addressing current welfare reform challenges than existing state approaches. There is, however, no evidence to support either of these conclusions; indeed, there is evidence to suggest that the proposed approach could be less effective than other state-based approaches.

The reformulated caseload reduction credit is likely to give states little help toward meeting the work participation requirements. Under H.R. 4090, states would only get credit toward their work participation rates if the overall caseload fell over the previous three-year period. While no one can predict caseload levels with certainty, the rapid caseload decline that occurred in the mid 1990s appeared to be leveling off even before the recession and in 2001, 34 states saw their caseloads increase. It should be noted that when a state's cash assistance caseload remains steady, this does not mean that families are not moving from welfare to work. It simply means that the number of families who have fallen on hard times and need help, at least temporarily, is about the same as the number of recipients who were able to leave welfare, often because they found jobs.

The Proposed Participation Rate Structure Would Limit State Flexibility

Under H.R. 4090, states would be required to place a substantially increased proportion of their caseloads in a very narrow set of work activities or be subject to fiscal penalties. Two activities, job search and vocational education, that currently count toward the rate would not count at all toward the 24-hour requirement. For recipients who do not already have an unsubsidized job, they could only be counted toward a state's work participation rate if they worked in a subsidized job or participated in work experience, supervised community service, or on-the-job training programs for 24 hours each week. Families would have to be placed in one of these activities even if the state does not believe this would be the best approach to helping them succeed in the labor market.

Some may argue that because participation rates remain below 100 percent, states will continue to have the flexibility to structure different activities for a significant share of its TANF recipients. This is incorrect. While the participation rate that states will be required to meet is less than 100 percent, to achieve a participation rate in the 60 to 70 percent range, they will need to impose the federally-mandated work requirements on nearly 100 percent of families. This is the case for two reasons. First, some parents will not be able to meet the hourly requirements for a particular week because of personal family circumstances, including illness or having to care for an ill child. ⁽⁷⁾ Second, even in well-run programs, a significant number of recipients are not in activities at any given time because they are waiting for a program to begin a new session, are between work activities or assignments, or they cannot begin a work activity until child care is in place. Researchers have recognized that in order to attain any given participation rate, a state must actively seek to attain participation for a considerably larger group of families. ⁽⁸⁾

The proposed legislation would allow states to count families placed in substance abuse, rehabilitative activities, work-related education or training, and job search and job readiness activities for three consecutive months in any 24 month period. It also would allow states to define what counts toward work for the final 16 hours of the 40 hour work requirement. As a practical matter, however, these provisions provide almost no new flexibility for states.

Under current law, states actually have considerable flexibility to place participants in the types of activities that the proposed legislation would now limit to three months. While some of these activities do not currently count toward the work participation rates (except in several states with waivers that the proposed legislation would rescind), states have generally achieved actual participation rates that are substantially higher than the required federal standard. This is due in large part to the current law's caseload reduction credit that lower the rates states must meet based on the decline in caseloads since 1995. As a result, states have been able to place recipients in activities that do not count toward the federal rate without having to be concerned that they would fail to meet the required standard. Many states have used this flexibility to place participants in barrier-removal activities that have not necessarily been limited to three months, while maintaining their otherwise vigorous and intensive efforts to move recipients to work.

By increasing the overall rates and modifying the caseload reduction credit in a manner that would likely limit the extent to which it reduces states' effective rates over time, the proposed legislation would eliminate this flexibility that currently exists.

Similarly, allowing states to define work activities that count toward the final 16 hours of a 40-hour requirement is not an enhancement to the flexibility states have under the current work participation requirements. For families with children age 1 to 6, the federally-mandated work requirement is 20 hours but states are free (and many do) require participation in state-approved activities -- activities which may differ from the work activities under current federal law -- for additional hours each week. Since the proposed legislation would require an additional 20 hours of work for these families, it can only be characterized as limiting state flexibility for them, regardless of whether states are able to define allowable work activities for 16 of the new hours.

For families with school-age children who are currently subject to a 30-hour requirement, the proposed legislation would allow states to count a broader range of activities toward hours 25 through 30 of the work requirement than is currently allowed. This is a very limited enhancement of flexibility, however, given that the plan would also narrow substantially what counts toward the first 24 hours of the work requirement. In addition to prohibiting vocational education, job readiness, and job search from counting toward the first 24 hours, the plan would not allow other educational activities and job skills training -- which currently can count for 10 of the required 30 hours -- to count until the 24 hour requirement in direct work activities is satisfied.

Moreover, regardless of the child's age, in order to meet the 24-hour requirement, states will likely have to place families in the narrower set of paid and unpaid work activities for more than 24 hours. This is because a state gets no credit for an individual participating in the work activities prescribed by the proposed legislation for 23 hours or less, even if they are in other activities for 16 hours. To avoid the potential risk of not getting any credit for a family, states are likely to schedule participants in the narrower set of activities for significantly more than 24 hours each week.

Finally, many states -- particularly those with low cash benefit levels -- will have difficulty meeting the work requirements while complying with the federal legal requirement that recipients not be required to work at an effective wage below the minimum wage. Many TANF recipients receive only partial benefits because they have other forms of income (including Social Security benefits) while many families in low-benefit states receive cash assistance benefits that are below $200 per month. The Herger bill makes no exception to the requirement that families participate in paid or unpaid work for 24 hours each month for families in which such a requirement would mean that they were working at below the minimum wage. ⁽⁹⁾

States would be Forced to Abandon their Own Successful Approaches

Under the proposal, all states would face sharply increased work participation rate requirements that would require them to focus on meeting these requirements to avoid fiscal penalties. Families that are not able to find unsubsidized employment, would have to be placed in subsidized work, work experience, supervised community service, and on-the-job training. Only a few states and localities have welfare-to-work programs that place a substantial number of parents in these activities and only about 7 percent of TANF recipients nationally who are not working participate in one of these narrow activities. ⁽¹⁰⁾ As a consequence, most states would have to reconstruct their work programs, jettisoning current employment initiatives in favor of the narrow set of activities that would meet the new prescriptive federal requirements. ⁽¹¹⁾

Instead of large-scale subsidized work or work experience programs, most states operate welfare-to-work programs that are focused on placing participants in unsubsidized private-sector employment. These programs generally require participants to conduct an intensive job search often in conjunction with "soft-skills" training and other job readiness activities. In keeping with recent research findings discussed below on the effectiveness of what is commonly referred to as a "mixed strategy" approach, a growing number of states are modifying their programs to combine an overall work emphasis with opportunities for pre-employment training and targeted vocational education. While work experience is often a component in these types of programs, it is typically used on a case-by-case basis, rather than as a one-size-fits-all activity for every participant who does not immediately find unsubsidized employment.

While evaluation studies that cover all 50 states and compare the effectiveness of all of the varying work program approaches are not available, the data that is available generally finds that states using strategies quite different from the particular program model the proposed legislation would mandate have been successful in helping large numbers of parents move from welfare to work. In fact, many states utilizing very different approaches have achieved rates of caseload reduction and employment that equal or exceed national averages.

There is some evidence to suggest that the model mandated by the proposed legislation could be less effective than other state approaches. Washington State's recent decision to discontinue its work experience program is instructive on this point. The state's decision was based in part on results from a recent evaluation of the state's TANF program which found that work experience had no positive impact on participant earnings, while other activities -- including jobs skills training, a paid transitional jobs program, and pre-employment training -- all had positive impacts on earnings. ⁽¹²⁾ The pre-employment training program had the strongest earnings impacts, increasing quarterly earnings by $864. The work experience program did appear to increase employment rates somewhat, but other activities, including job skills training increased employment by a greater amount.

Of the programs evaluated in Washington State, only the work experience program and the paid transitional jobs program would appear to count toward the first 24 hours the proposed work rates. ⁽¹³⁾ Since the paid transitional jobs program is too expensive to operate on the large scale that would be required to meet the proposed rates, Washington State would have little choice but to resurrect a work experience program that it had previously discontinued because of poor results.

The model that would be dictated by the proposed legislation also runs counter to the growing state interest in tailoring work activities more closely to the needs of individual parents rather than being limited to a narrow set of work activities countable toward the work participation requirements. States want to move their work programs in this direction in part because of the substantial evidence that now exists about the extent of barriers to employment among the remaining TANF caseload. By narrowing what counts toward meeting work requirements and diverting funding to that very limited set of activities, the proposed legislation will make it more difficult for states to invest in benefits and services that address the significant challenges that remain -- helping the harder-to-employ move from welfare to work and helping recipients with persistently low wages qualify for higher-paying jobs. In fact, in February the National Governors' Association passed on a bipartisan basis a welfare reform policy that called on Congress to allow states to count a broader range of activities toward the work participation requirements. ⁽¹⁴⁾

The Proposed Legislation Would Mandate an Approach that Runs
Counter to Two Decades of Welfare Reform Research

The legislation would mandate an approach that falls outside of the mainstream of current state welfare-to-work approaches despite a lack of research evidence indicating that it would be more effective than other work programs that are evaluated over the last two decades. The clearest finding from this extensive body of research is that providing a range of employment and training services is the most effective welfare-to-work strategy, rather than the one-size-fits-all model that the H.R. 4090 would impose on states. The single most effective program in the recently completed 11-program National Evaluation of Welfare-to-Work Strategies (NEWWS) -- a program that operated in Portland, Oregon in the mid-1990s -- did not have a large-scale work experience component. Instead, the Portland program emphasized moving participants quickly into private sector jobs, while allowing for varied initial activities and establishing performance standards that encouraged case managers to help participants find jobs that paid well above the minimum wage and offered better long-term career opportunities. ⁽¹⁵⁾ Participants were more likely to find better-paying jobs that were full-time and provided employer-based health insurance than welfare participants in a control group.

Similarly, none of the programs that have been shown to measurably increase child well-being included work experience as a significant program component. Perhaps the most notable example is the Minnesota Family Investment Program (MFIP) demonstration, which increased child well-being (as measured by school performance and behavior), in addition to having strong positive impacts on employment, poverty, and marriage rates. MFIP achieved these outcomes despite placing fewer participants in work experience than in any other program component. ⁽¹⁶⁾ Minnesota has since adopted a statewide TANF program modeled on this demonstration program. Program administrators have said that the change proposed by the Administration would force them to shift away from this program model in spite of its unprecedented success.

Sweeping New Waiver Authority Is the Wrong Mechanism for Assuring Adequate State Flexibility

The Herger bill would allow the Secretaries of HHS and the Department of Labor to waive any program rule in any program operated through their agencies, with the exception of Medicaid (though it appears that states could seek waivers of SCHIP rules). A companion TANF reauthorization bill introduced by Rep. McKeon (R-CA), chairman of the subcommittee on 21^st Century Competitives of the House Education and Workforce Committee (which has joint jurisdiction over some parts of the TANF program) also would include programs under the Secretary of Education in this "super waiver" proposal. Programs that could be affected include unemployment insurance, student loans and aid programs, federal support for K-12 education, job corps, head start, the public health service, and family planning programs. Some have cited this so-called super-waiver proposal as the answer to questions raised about the significant restraint on state flexibility included in the work-related sections of the proposal. (While the current proposal is limited to programs in these agencies, the Administration's original proposal was broader and House leaders have indicated that programs in other agencies will be added to the super-waiver proposal by other House committees.)

The super-waiver proposal does not limit the number of states that can be granted particular types of waivers nor does it impose any significant limitations on the types of rules states can apply to have waived, except that a waiver must not result in higher federal costs than would be incurred under standard federal law. This is in contrast to most current waiver provisions. For example, the Workforce Investment Act allows states to apply for waivers but prohibits waivers of federal worker protection and minimum wage laws. Moreover, unlike past waiver policies which allowed states to operate demonstration projects to test the efficacy of new initiatives or alternative approaches, there would be no requirement that these waivers have a research objective or even be subject to an independent evaluation. Rather than being designed to encourage states to test new approaches, this waiver policy simply would allow waivers of any program rule a state did not like.

The following are just some examples of the kinds of waivers which the Secretaries of these agencies would have authority to approve:

• The Secretary of the Department of Education could waive any rules related to federal education funding, including formulas that direct resources to low-income children.

• The Secretary of HHS could approve a state waiver in which key federal TANF program rules are eliminated -- including the maintenance-of-effort requirement, data reporting standards, or the requirement that states not sanction a parent that could not meet work requirements due to a lack of child care.

• HHS also could approve a waiver in which a state would be permitted to divert all of the resources it now devotes to activities to ensure that child care providers offer safe, high-quality care to other purposes. As child care budgets tighten due to heightened work requirements and frozen funding, states may be tempted to ignore the importance of the quality of child care services and wish to focus solely on placing as many children as possible in child care programs. Basic health and safety protections now required under federal law also could be waived.

• Waivers that transfer substantial resources from activities permissible under one program to entirely different programs also would be permissible. For example, the Secretaries of these agencies could approve waivers in which federal TANF funds are shifted to provide student aid to middle-income college students, to augment federal funding for public education, or employment and training programs for higher-income laid-off workers.

• The Herger bill also would appear to allow the Secretaries to waive other independent statutory and regulatory requirements applicable to programs within their jurisdiction, including minimum wage requirements, OSHA standards, and civil rights regulations. At a minimum, there is no language in the bill that would clearly prohibit waivers of these requirements. There also is little question that the Secretaries would be able to waive certain program-specific civil rights protections that provide greater protections than general civil rights law or that clarify the applicability of civil rights rules to specific programs. This would include section 188 of WIA which contains equal opportunity and nondiscrimination protections specific to WIA and 408(c) of TANF which provides that the Americans with Disabilities Act and Title VI of the Civil Rights Act of 1964 apply to TANF.

If programs under the jurisdiction of other agencies, the problems only compound. If programs under the Departments of Agriculture and Housing are included, for example, a state could apply for waivers that could dramatically reorder federal funding priorities involving billions of dollars and cutting across multiple programs.

The only statutory limitation, other than cost-neutrality, on these Secretaries' authority to approve waivers is that the state applying must show that the waiver would further the purposes of all of the programs involved. This language is so vague that a Secretary could determine that any state proposal met this test.

In short, this broad new waiver authority would mean that if a state and the administration agree that they do not approve of a statutory provision in TANF, public health programs, child care programs, education and training programs, or any other program within the jurisdictions of HHS and DoL, they can effectively exercise line-item veto power and have that rule waived. This would eliminate any assurance that Congress could establish any national standard or requirement in programs within HHS or DoL. If enacted, this waiver authority would represent an unprecedented abrogation of Congressional authority to establish funding priorities, set funding levels, and legislate program parameters. In transferring such authority to the Executive branch, this provision would allow any Administration to make, in conjunction with a state, unilateral policy decisions that Congress never would have agreed to within the legislative process.

Such broad waiver authority is not needed and could be very damaging. If there are particular areas within a program in which there is consensus that states should have more flexibility in establishing rules, those areas should be addressed in a targeted manor. For example, if there is consensus that states should have more latitude in the way they design their welfare-to-work programs, then the TANF statute should provide that flexibility. Similarly, if there are particular areas in which states should have more flexibility to align WIA and TANF rules, those areas should be identified and the statutes altered to provide that flexibility.

It also should be noted that the Herger bill would terminate welfare-related waiver programs currently operating in some 10 states. These waivers were granted prior to the enactment of TANF and states with such waivers were allowed to continue those programs, even if they conflicted with federal TANF rules, under the 1996 welfare law. It seems odd that while seeking to provide the Administration and states with new ways to seek very broad waivers, that the bill would terminate those waivers already in place.

The Herger bill also would appear to allow the Secretaries to waive other independent statutory and regulatory requirements applicable to programs within their jurisdiction, including minimum wage requirements, OSHA standards, and civil rights regulations. At a minimum, there is no language in the bill that would clearly prohibit waivers of these requirements. There also is little question that the Secretaries would be able to waive certain program-specific civil rights protections that provide greater protections than general civil rights law or that clarify the applicability of civil rights rules to specific programs. This would include section 188 of WIA which contains equal opportunity and nondiscrimination protections specific to WIA and 408(c) of TANF which provides that the Americans with Disabilities Act and Title VI of the Civil Rights Act of 1964 apply to TANF.

The Child Support and Family Formation Provisions of the Administration's Plan

The proposed legislation makes several changes in the areas of child support and family formation.

• For current and former welfare recipients, states would be given a new option and new incentives to direct child support payments currently retained by states and the federal government to families. (Collections on behalf of current and former welfare recipients are often retained by the federal government and states as reimbursement for welfare costs.)

• The "illegitimacy reduction bonus" would be replaced with a "Healthy Marriage Promotion" competitive matching grant program. States would be able to use federal TANF funds to meet the state match requirement.

• An additional $100 million is diverted from the high performance bonus for use by the Secretary to fund further marriage promotion research, demonstrations, and technical assistance.

• The fourth purpose of TANF would be changed from "encourag[ing] the formation and maintenance of two-parent families" to "encourag[ing] the formation and maintenance of healthy, 2-parent married families, and encourag[ing] responsible fatherhood." States would be required to establish annual, specific plans and numerical performance goals to improve outcomes with respect to this purpose and the other three purposes of TANF.

Child Support Provisions are More Modest than Earlier House-Passed Legislation

There is strong evidence that noncustodial parents are more likely to pay child support if they know that the support goes to their children. Research has shown that when child support is passed through to families receiving welfare, the child support paid by noncustodial parents increases, welfare receipt declines, and children's financial well-being improves. ⁽¹⁷⁾

The Herger bill includes two provisions that would help states to implement policies that increase the extent to which child support goes directly to children. The first provision would provide states with an option to direct delinquent child support payments collected by intercepting noncustodial parents' federal tax refund checks to the children of former welfare recipients. The second provision would help states to implement or enhance policies that direct a portion of child support payments collected from noncustodial parents of children currently receiving TANF to their children. Under current law, states and the federal government generally retain child payments made by noncustodial parents of children receiving TANF. While states already have the flexibility to pass through child support, if they exercise this option, they must still send the federal government its portion of any child support collected, making it an expensive option to take. The Herger bill would help states pay for the costs of providing up to the greater of $100 per month or $50 more than the current state "pass through" to families that receive TANF.

These provisions, while positive, are far more modest, than child support legislation sponsored by Representatives Nancy Johnson and Ben Cardin that passed the House of Representatives in 2000 with overwhelming bipartisan support.

• Within five years of enactment, the Johnson-Cardin bill would have required all states to direct intercepted federal tax refunds to former welfare recipients who are owed past-due child support. A uniform national rule is preferable to a state option in this area for two reasons. It is more equitable than a state option -- whether a child receives support should not depend on her or his state of residence. It also makes more sense given the additional complexities that would result in the interstate distribution of child support if states had varying rules in this area.

• The Johnson-Cardin legislation would have limited the requirement that families applying for welfare sign over to the state their right to collect unpaid child support that was owed to them before they applied for welfare. (The requirement that families turn over the support owed to them while receiving welfare is retained in both bills). The Herger bill leaves this requirement in place. The Johnson-Cardin approach recognizes that families who hold off from applying for welfare should not be penalizing by having to turn over child support that was owed to them before applying for welfare.

• The Johnson-Cardin bill placed a substantially higher limit on the amount of child support that states could pass through to current TANF families with financial support. Under the Johnson-Cardin bill, the federal government would help pay for the costs of providing up to $400 in child support to a family with one child receiving TANF. Johnson-Cardin also is more advantageous than the Administration's plan for states that had previously implemented a child support pass-through policy. ⁽¹⁸⁾

Family Formation

There is substantial interest in developing programs that further reduce nonmarital births, foster and strengthen healthy two-parent families, and increase the proportion of children cared for by both parents. However, very little is known about what kinds of policies and programs could produce desirable results in these areas. (One exception is teenage pregnancy reduction, where a growing body of research points to successful strategies.) ⁽¹⁹⁾

Unfortunately, both the Healthy Marriage Promotion competitive matching grant program and the additional research and demonstration funding proposed in H.R. 4090 are so narrowly focused that little would be learned about effective strategies for strengthening and improving child well-being under this proposal. In both cases, the Department of Health and Human Services (HHS) would be required to fund a narrow set projects including marriage promotion activities such as pro-marriage advertising campaigns, pre-marital education classes, marital counseling, and relationship strengthening.

Efforts to reduce teen pregnancy are notably absent from the list of projects that can be funded with these resources, despite research indicating that reducing teen pregnancy can be an effective means to reducing the number of children living in single-parent families. Also absent from the list of allowable uses of these funds are efforts to foster the involvement of noncustodial parents in the lives of their children, or to enhance the ability of noncustodial parents to pay child support could not be supported with these resources. ⁽²⁰⁾ Because we know so little about what works in these areas, states should be allowed to use these funds to conduct a wide range of research and demonstrations that could reasonably be expected to have positive impacts on family formation.

Finally, there are two troubling aspects of the funding mechanism for these efforts. While we support eliminating the "illegitimacy bonus" which appears to have rewarded states that experienced falling nonmarital births unrelated to state efforts in this area, the high performance bonus should not be cut by 50 percent to fund these efforts. The TANF program includes many fiscal penalty provisions, but the high performance bonus is the only TANF provision that rewards states for achieving better employment outcomes and increasing access to work supports. In addition, states should not be permitted to use federal TANF funds as the state match for the Healthy Marriage Promotion competitive matching grant program. If the Congress decides that additional resources should be allocated to such marriage-related proposals, states should be required to contribute new resources, rather than taking funds from existing TANF efforts, to participate in a competitive matching program for which they are receiving additional federal funds.

The Fiscal Implications of H.R. 4090

Despite increasing the participation rates that states must meet and hourly requirements that families must meet, while also requiring states to place substantially more parents in more expensive subsidized jobs or work experience programs, H.R. 4090 would freeze both TANF and child care funding for five years at the FY 2002 level. Even without the far more costly work participation requirements on states in H.R. 4090, freezing TANF and child care funding for five years would itself mean that most states would be unable to maintain their current welfare reform efforts.

The 1996 law based each state's TANF block grant level on its historical AFDC spending. Funding was not indexed for inflation. Data from the Treasury Department show that in FY 2001, states spent $18.5 billion a year on TANF -- $2 billion more than the annual block grant level. States have been able to do this because they can tap unspent funds from the early years of the TANF program. Those funds, however, are dwindling quickly. Many states either have few remaining reserves of unspent funds from prior years or will be without any significant reserves at some point in the next couple of years. If funding remains frozen, many states will have to cut TANF services significantly, including supports for working poor families with children. Adding to this problem, the $16.5 billion will purchase less in services and benefits with each passing year, due to inflation. Since 1997, the block grant has lost 11.5 percent of its value -- five more years of funding at the current level would mean that it would fall 22 percent below its value in 1997.

If the child care block grant is frozen, it would lose nearly 12 percent of its value by FY 2007 due to inflation. The cost of child care is comprised primarily of the salaries of child care workers. States will not be able to freeze the salaries of these workers for the next five years and, thus, as the cost of child care rises, states will be unable to maintain their current service levels without devoting increased state resources to child care or using larger amounts of TANF funds for child care, leaving even less in TANF for other purposes. It is likely that most states would be forced either to reduce the number of children served or increase the costs borne by low-income families by reducing the value of the subsidy. Thus, while most analysts agree that there remains large numbers of low-income families who need child care assistance in order to afford quality, stable child care, funding would be falling and states would not be able to maintain even their current child care programs.

The Herger bill includes a provision which would allow states to transfer up to 50 percent of its TANF funds to the child care block grant. Under current law, states can transfer up to 30 percent of TANF funds to the child care block grant but can spend an unlimited amount of TANF funds directly on child care. In fact, under current law, a state could choose to spend its entire TANF block grant on child care assistance. Thus, increasing the amount that can be transferred to the child care block grant provides no additional resources for child care.

New Work Requirements Would Be Costly

Under the proposed legislation, states would face a five-year freeze on TANF and child care block grant funding at the same time that the new federally-mandated work program structure substantially increased their work program and child care costs. An analysis by the Center for Law and Social policy of the Administration's work participation proposal -- a proposal very similar to that in the Herger bill -- estimates that states would need to spend an additional $15 billion between 2003 and 2007 to meet the Administration's work requirements. This figure includes $7 billion in additional work program costs and $8 billion in additional child care costs. ⁽²¹⁾

States would face this combination of decreased "real" funding for TANF and child care and increased work program and child care costs at the very time their reserves of unspent TANF funds from the program's early years were running out. Taken together, these factors would likely force most states to cut spending on TANF-funded programs that support low-income working families who do not receive cash assistance, since the bulk of state TANF spending outside of the traditional welfare system is dedicated to providing supports to these families.

If states are forced to scale back supports such as child care for low-income working families, programs designed to help welfare recipients find and retain jobs may be much less successful. If a parent finds a job and leaves welfare but does not have access to child care, transportation or wage supplements -- supports that states now fund with TANF and child care block grant funds -- the parent is less likely to retain the job and remain off welfare.

Bill Would be Especially Problematic for States With Low TANF Funding Levels

The fiscal implications of H.R. 4090 would be especially problematic in the large number of states with very low TANF block grant allocations relative to their needy populations. In fiscal year 2001, eight states received less than $600 in block grant funding per-poor child -- the national average is about $1200 per-poor child -- and another 13 states received less than $900 per-poor child. (These figures include additional TANF funds provided in "supplemental grants" -- designed in part to provide additional funding for underfunded states). These underfunded states would likely have even greater difficulty than most states in summoning the resources necessary to create large subsidized job or work experience programs.

Bill Also Would Weaken the Maintenance-of-Effort Requirement

In addition to freezing federal funding, the Herger bill would weaken the current maintenance-of-effort requirement (MOE) which requires states to spend a certain level of their own resources in order to be eligible for the TANF block grant. Under current law, only state spending on needy families can count toward the maintenance-of-effort requirement. The Herger bill would allow state spending on activities related to reducing nonmarital pregnancies or promoting marriage that are not targeted on low-income families to be counted toward the MOE requirement. States already have the ability to spend federal TANF funds on pregnancy prevention and marriage-related programs for non-needy families. Thus, there are ample resources available if states are interested in funding such efforts. The practical effect of the Herger proposal will be that states will be able to count spending on efforts they are already making that serve these purposes and then reduce the amount of resources they spend on TANF-related programs.

For example, suppose a state has been operating for the past five years a mediation program through its court system to try to reduce divorce rates and the program is available to all couples contemplating divorce. This program was established without any consideration of the TANF statute. Under the Herger bill, the state could now count the entire cost of this program toward its maintenance-of-effort requirement, enabling it to withdraw state resources it currently spends on low-income programs to meet the MOE requirement.

Strengthening Work and Families: An Alternative to the Chairman's Plan

There is a better alternative to mandating a top-down approach that would force states to replace their current work programs with more costly and less effective programs that could, in some cases, become "make-work" programs. A better and equally work-focused alternative plan would push states to address the remaining challenges of welfare reform by drawing on lessons from the extensive base of welfare reform research and building on current successful state-based approaches.

Reward States for Putting Parents in Jobs: The caseload reduction credit should be replaced with a mechanism that gives states credit toward the work rates when a family leaves welfare for work. The caseload credit wrongly rewards states for caseload decline, even if it is achieved in the absence of work. Instead, states should get credit based on the number of families that leave welfare for work. This approach would send a far more positive signal to states -- it would recognize that states should be rewarded for their programs' successes, namely, the families that have left welfare for work. To provide an additional incentive to keep families employed after they leave welfare, states should continue to get credit for families for six to 12 months after they leave if employment is maintained. States also should get "extra credit" for placing families in higher-paying jobs.

Increase States' Ability to Focus on Helping Parents Find Better-Paying, More Secure Jobs: Additional steps need to be taken to help families get better jobs. States should be given broader flexibility to allow parents to participate in vocational educational programs that could help recipients improve their skills and secure more stable employment. In addition to the NEWWS evaluation findings, there is growing evidence that carefully designed educational programs can have a substantial impact on earnings. Maine's Parents-as-Scholars program, which allows participation in vocational education, including post-secondary education, for more than 12 months, is one example. Wage rates for Parents-as-Scholars participants jumped by nearly 50 percent -- from about $8.00 an hour prior to entering to program to nearly $12.00 an hour after program completion. ⁽²²⁾ In spite of its proven success, Maine is not able to use federal TANF dollars to operate the Parents-as-Scholars program because participants would not count toward TANF work rates given the current 12-month limitation on vocational education.

Help Parents with Work Barriers Succeed in the Labor Market: States need more flexibility and support in working with families with barriers to employment. States should be encouraged -- not discouraged -- to identify parents that have significant barriers to employment and work with those parents to overcome those conditions and move toward employment. At the very least, states should be allowed to count families that they place in barrier-removal activities toward the work participation requirements without any arbitrary limits. As noted above, the proposal to allow certain barrier removal activities to count for three consecutive months in any 24-month period is not a significant improvement on current policy.

Families with barriers would also be helped by improvements in sanction policies. A growing number of rigorous studies conducted by or for states have found that sanctioned families are more likely to have serious barriers to employment than families that leave for other reasons. A pre-sanction review process -- in which families are contacted prior to the sanction, screened and assessed for barriers that may have hindered families ability to meet work requirements, and provided with services to address any barriers identified -- would help improve compliance with work rules and ensure that participants are receiving the right types of employment services.

Provide Additional State Flexibility to Make Work Pay: One of the most important research findings from the past few years pertains to the importance of earnings supplement policies in "making work pay." Since the early 1990's, nearly all states have adopted policies that allow families to keep a share of their welfare benefits as a wage supplement. These supplements remain quite modest -- in the most states they are eliminated before a family's earnings reach 75 percent of the poverty line -- but help ensure that a family is actually better off by working. Unfortunately, such supplements count against the federal time limit even though families must be working to receive them. This helps explain an unanticipated finding from states that have studied the effects of their time limit policies -- that a majority of families who are terminated due to time limits are working prior to their termination. The families terminated due to time limits in these states tend to have lower wages, educational levels, and higher poverty rates than families leaving welfare for other reasons. States that decide to provide wage supplements to working families like these should be able to do so without applying the federal time limit.

Extend Work-Based Reforms to Low-Income Fathers: While TANF has helped boost employment rates for single mothers, more needs to be done to improve employment outcomes for disadvantaged fathers. The employment rates and labor force participation of young black men with a high school degree or less actually fell in the 1990s, even as employment outcomes for young black women improved. ⁽²³⁾ The federal government should provide states with incentives to extend employment services and other necessary services to low-income fathers. States can currently serve low-income non-custodial parents with TANF funds, but existing programs are limited. States should be allowed to count low-income fathers of TANF children toward their TANF work rates if the fathers are receiving TANF-funded employment services. This would provide states with an incentive to extend TANF-funded employment services to more low-income fathers. States also should be given one-time federal grants to develop programmatic recommendations to extend employment services to low-income fathers and enhance program coordination among programs that work with low-income fathers, including child support, employment, and criminal justice programs.

Allow States to Bring Legal Immigrant Families into their TANF Work Programs: States should also be allowed to bring recent legal immigrant families into their federally-funded TANF work programs. About one in four low-wage workers with children is a immigrant and most of the children in these families are U.S. citizens. A significant share of these low-wage legal immigrant workers are excluded from the federally-funded TANF program because they have lived in the United States for less than five years. ⁽²⁴⁾ In fact, recent legal immigrants are the only significant group of low-wage workers that states are prohibited from serving (aside from families that have received welfare for more than 60 months, but states have flexibility to provide hardship exemptions to families after 60 months).

Legal immigrant families are not only ineligible for TANF-funded cash assistance, but also for TANF-funded work supports and services such as child care, transportation, job training, and English-language instruction. Opponents of state flexibility to serve legal immigrants claim that a five-year eligibility ban is needed to prevent welfare dependency among legal immigrants. However, TANF already provides ample safeguards against welfare dependency, including mandatory work requirements and a five-year limit on assistance. These restrictions apply regardless of immigration status. It isn't clear why a complete eligibility ban -- a drastic additional protection against dependency that does not apply to long-term immigrants or to citizens -- is necessary for legal immigrants during their first five years in the United States. The Administration also suggests that an eligibility ban is necessary because benefits may induce legal immigrant to migrate to the United States for welfare benefits -- the so-called "magnet effect" -- even though recent social science research finds no evidence to support the magnet effect hypothesis ⁽²⁵⁾ and some of the staunchest proponents of immigrant restrictions agree there is no magnet effect. ⁽²⁶⁾

Provide Adequate Funding for States to Operate Effective Work Programs: Finally, if states are to maintain their existing work support system, expand services to more low-income fathers, and make further progress on the challenges that remain, they will need to have an adequate long-term funding base. The TANF block grant should be adjusted to keep pace with inflation. Funding for the Child Care and Development Block Grant also should be increased so states can provide subsidies to a greater portion of eligible families.

Two final issues that arise from the current-law funding structure also need to be addressed. As discussed above, large number of states have very low TANF block grant allocations relative to their needy populations. Reauthorization legislation should allocate additional funding beyond the level currently provided in the supplemental grants -- and in H.R. 4090 which would freeze the supplemental grants at their current level -- to increase funding levels in these underfunded states. The TANF program also lacks an adequate mechanism for providing states with additional resources for recessions. H.R. 4090 would reauthorize the current contingency fund, but far more substantial modifications are needed than are included in the bill to ensure that states have adequate resources during a downturn.

Thank you for inviting me to testify today. TANF reauthorization represents an opportunity to build on the successes of the last six years to ensure that poor families with children can succeed in the labor market. Reauthorization legislation should take a work-focused approach that recognizes both the strengths of current state welfare-to-work efforts, addresses those areas in which more could be done to help parents overcome barriers and find jobs that can support their families, and provides the resources necessary for states to operate effective programs.

1. Center on Budget and Policy Priorities analysis of fiscal year 2001 data reported by states to the Department of Human Services.

2. U.S. General Accounting Office, Welfare Reform: States Provide TANF-Funded Services to Many Low-Income Families Who Do Not Receive Cash Assistance, March 15, 2002, http://www.house.gov/cardin/GAO_TANF.pdf. GAO counted the number of non-welfare families in a single TANF-funded program in 22 states (generally the TANF-funded program with the most participants) and the number of non-welfare families in more than a single program in three states. This count yielded approximately 830,000 non-welfare families who received TANF-funded services. GAO noted that this is a substantial underestimate of the number of families receiving TANF-funded services. If the count were extended to all 50 states, included participants in MOE-funded separate state programs, and encompassed more than a single program from each state, the number would easily exceed one million families. For a further discussion of these points, see Center on Budget and Policy Priorities, TANF's "Uncounted" Cases: At Least One Million Families Receiving Services in TANF-Funded Programs Not Included in TANF Caseload, April 2002.

3. Of the roughly 2.1 million TANF cash assistance cases, about 1.3 million include adults who are subject to federal work requirements. More than a third of the cash assistance caseload (about 700,000 cases) is composed of "child-only" cases that are not subject to federal work requirements. Approximately 8-9 percent of the remaining cases (roughly 110,000 to 130,000 cases) are families who are not subject to federal work requirements because they include a child under age 1. Thus, slightly less than 1.3 million TANF families are subject to the federal work requirements.

4. Center on Budget and Policy Priorities analysis of Current Population Survey data.

5. Elise Richer, Steve Savner, and Mark Greenberg, Frequently Asked Questions about Working Welfare Leavers, Center for Law and Social Policy, December 2001.

6. Maria Cancian, Robert Haveman, Daniel R. Meyer, and Barbara Wolfe, Before and After TANF: The Economic Well-Being of Women Leaving Welfare, May 2000.

7. The proposal does allow for very limited "leave" for recipients. While months have an average of 4.33 weeks in them, the proposal would provide full credit to a state for a family in which a parent participated in countable activities for 160 hours in the month -- the equivalent of four, 40 hour weeks, rather than 4.33, 40 hour weeks. Thus, in an average month, a parent could "miss" up to 13 hours of required activities and still count fully toward the state's work rates. It appears that if the hours were missed in direct work activities, however, the state could lose all credit for the family toward the work participation requirements. The proposal requires, "at least 24 hours per week in a month" of participation in direct work activities which would appear to mean that if a parent were scheduled to participate in work experience (a direct work activity) 24 hours each week and missed two days in a particular week because her child was sick, she would need meet the requirement that she participate 24 hours each week in direct work activities and the state would not be able to count her toward the work participation requirements.

8. Gayle Hamilton and Susan Scrivener, Manpower Demonstration Research Corporation, Promoting Participation: How to Increase Involvement in Welfare-to-Work Activities, September 1999.

9. There is also no mechanism to reduce the number of required hours by any child support paid to the state by a non-custodial parent of a child receiving TANF assistance. In these cases, even if the state retains the child support to reimburse itself for the assistance provided to the child, the custodial parent would be required to work off the entire TANF grant, rather than the amount of the grant less the among of child support received. In effect, the custodial parent would be forced to work off the non-custodial parent's child support payment.

10. U.S. Department of Health and Human Services, Office of Planning, Research and Evaluation, Average Monthly Number of Adults with Hours of Participation by Work Activity as a Percent of the Total Number of Adults, Fiscal Year 2000, Table 6C, http://www.acf.dhhs.gov/programs/opre/particip/.

11. Nationally, in fiscal year 2000, about 21 percent of TANF recipients subject to the work requirements satisfied those requirements by working in an unsubsidized job. An additional 7 percent of TANF recipients worked in unsubsidized jobs but worked fewer hours than required to satisfy current law work requirements. Even assuming that 28 percent of recipients can be counted toward the work participation requirements in H.R. 4090 because they are combining work and welfare, states would have to achieve a very large increase in the proportion of recipients participating in subsidized employment, work experience programs, and supervised community service programs to achieve the proposed participation rate standards. (It is also important to note that many of those currently combining work and welfare do not participation in work activities for a total of 40 hours each week and, thus, would not be countable toward the proposed requirement.)

12. Marieka Klawitter, Effects of WorkFirst Activities on Employment and Earnings, University of Washington, September 2001.

13. Washington State also places a substantial number of families in "community service", but this activity was not evaluated and appears to be defined in broader fashion than would be allowable under H.R. 4090.

14. National Governors' Association, HR-36, Welfare Reform Policy.

15. Fewer than 15 percent of participants participated in work experience in the Portland program. Significantly more participants were placed in basic education, vocational education, and job search. Susan Scrivener, Gayle Hamilton, et al., Manpower Demonstration Research Corporation, Implementation, Participation Patterns, Costs, and Two-Year Impacts of the Portland (Oregon) Welfare-to-Work Program, May 1998. The Portland program only used work experience on a individualized basis and program staff custom-designed positions based on participant's skills and interests.

16. Over a 36-month period, less than six percent of longer-term recipients and about two percent of shorter-term recipients (new applicants when the program began) participated in on-the-job training or work experience. As in Portland, substantially more clients were placed in job search, vocational education, and other educational activities. Cynthia Miller, et al., Manpower Demonstration Research Corporation, Reforming Welfare and Rewarding Work: Final Report on the Minnesota Family Investment Program, September 2000.

17. Vicki Turetsky, Reauthorization Issues: Child Support Distribution, Fact Sheet: "Early Findings from Wisconsin Experiment to Get More Child Support to Families," Center for Law and Social Policy, February 2002, http://www.clasp.org/pubs/childenforce/Early%20Findings%20from%20Wisconsin%20W.pdf.

18. Currently, a number of states do pass through some child support -- often $50 -- to families receiving TANF cash assistance. H.R. 4090 impacts these states differently from those that do not currently pass through any child support collections. In the states that currently pass-through child support, federal help would only be available in meeting the costs of increasing the pass-through above its current level. For example, if a state already had a $50 pass-through the plan would share in the costs of increasing the pass-through to $100, but not in the costs associated with the first $50 of the pass-through.

19. See Isabel Sawhill, What Can be Done to Reduce Teen Pregnancy and Out-of-Wedlock Births?, The Brookings Institution, October 2001.

20. Some of these activities could be funded through the fatherhood initiative included in the proposal. However, fatherhood funds cannot be used to fund employment services and the initiative is only authorized rather than actually being funded. In order to fund fatherhood projects outlined in this part of the Herger bill, the Appropriations Committee would have to appropriate resources for it. Moreover, the proposal would only authorize $20 million in funding annually for the fatherhood initiative, far less than the up to $300 million per year in federal TANF funds that could be spent on the marriage-related projects.

21. Mark Greenberg, et al., At What Price? A Cost Analysis of the Administration's Temporary Assistance for Needy Families (TANF) Work Participation Proposal, Center on Law and Social Policy, April 2002.

22. Rebekah J. Smith, Luisa S. Duprez, and Sandra S. Butler, Parents as Scholars: Education Works, March 2001.

23. Paul Offner and Harry Holzer, Left Behind in the Labor Market: Recent Employment Trends Among Young Black Men, Center on Urban and Metropolitan Policy, The Brookings Institution, April 2002.

24. According to the Urban Institute, some 3 million legal immigrants -- about one-third of all legal permanent residents in the country -- have been in the United States for five years or less.

25. See Neeraj Kaushal, New Immigrants' Location Choices: Magnets without Welfare, CUNY Graduate Center Working Paper (2002); Madeline Zavodny, Welfare and the Location Choices of New Immigrants, Economic Review, Federal Reserve Bank of Dallas (1997); and Madeline Zavodny, Determinants of Recent Immigrants' Locational Choices, Federal Reserve Bank of Atlanta, Working Paper 98-3 (1998).

26. See Comments of U.S. Representative Tom Tancredo and Comments of Daniel Stein, Executive Director of the Federation for Immigration Reform, transcript from Brookings Institution forum on legal immigrants and welfare, February 22, 2002, http://www.brookings.edu/dybdocroot/comm/transcripts/20020228.htm.