Our hearing today reviews a key provision of welfare reform: State spending requirements and their impact on work requirements.

As part of welfare reform in 1996, States were given a Federal block grant for the Temporary Assistance for Needy Families (or TANF) program which maintained record Federal spending on welfare.  At the same time, States were allowed to reduce State spending to as little as 75 percent of prior levels under “Maintenance of Effort” or “MOE” requirements.  This requirement was meant to ensure a continued Federal/State partnership in helping families move from welfare to work.

But now there is cause for concern that in some States this financial partnership is becoming a more one-sided proposition, with States no longer matching Federal spending as reliably as they once did.

Ironically, recent official data from the Department of Health and Human Services – including Fiscal Year 2011 data published yesterday – appears to suggest States have been increasing their own TANF spending rapidly.  As this graph shows, since FY 2005, States have reported spending almost one-third more on TANF, including during and after the Great Recession:

However, what appears to be behind this growth is not actual increases in State TANF spending, but rather increased State reporting of TANF spending, including spending by third parties that States are now claiming as their own.

Why would States choose to start reporting more TANF spending?

There are several reasons.  

First, under a 1999 regulation, States can reduce the share of adults they must engage in work if they “spend” more than required.  These “excess MOE credits” have attracted greater State interest since work requirements were strengthened in the Deficit Reduction Act signed into law in early 2006.  The most recent data suggests sixteen States used excess MOE credits to satisfy work requirements, effectively reducing the share of adults on TANF that are expected to work or train in order to maintain TANF benefits.

Second, other sources of Federal TANF funding – the ongoing “contingency fund” and the onetime “welfare emergency fund” created in the 2009 stimulus law – require increased levels of State spending.  So to get more Federal funds, States had to spend more State dollars, or at least report that they were doing so.   

This slide, taken from a presentation given to State TANF directors at a December 2006 conference, illustrates how the “hunt for MOE” has been on, and appears to be behind some reported increases in State TANF spending:

Many States have scoured their budgets to find other current program spending – such as for Pre-K, child care, and after school programs – they could report as TANF spending.  Others began counting third-party spending – such as assistance offered by food banks and Boys and Girls clubs – as TANF spending.  One State even apparently found a way to count the value of volunteer hours by Girl Scout troop leaders as State TANF “spending.”  

Now, I want to be clear that this is not illegal.  But that does not make it right.  States’ ability to claim such a broad range of items as TANF spending, as well as the availability of excess MOE credits when they do so, have eroded key features of the Federal/State partnership in place since 1996.

Today’s hearing will review these issues and consider whether the law should be adjusted to ensure TANF continues to meet its goal of helping low-income parents find and keep jobs.

We have an excellent panel of witnesses joining us today to review these issues, which our colleagues on both sides of the aisle recognize merit attention.  I look forward to working with all of our colleagues and invited guests on this as we consider TANF reauthorization later this year.

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