Holes In The Safety Net: Welfare During The Recession

Yesterday I wrote about the landmark 1996 welfare reform and its impact over the past 15 years. The reform instituted work requirements and time limits on welfare receipt and changed the way the program was administered. While the new model (TANF) led to some early successes, these have been wiped away by the economic downturn and, perhaps more troubling, the program has proven ill-equipped to buffer families from the harsh impact of the recession.

TANF has responded weakly to the increased need brought on by the recession. From the start of the recession in 2007 through 2010, the national unemployment rate increased by 88% but TANF caseloads grew only 14%. Food stamps (SNAP) caseloads, in comparison, increased 60% over roughly the same time period. Of course, not all unemployed people need the cash assistance TANF offers – they may have their own savings to draw on and/or be receiving unemployment benefits. But in one in four states, TANF caseloads have actually decreased since the recession began, a counterintuitive and harmful trend.

Why hasn’t TANF played a greater role in helping people weather the recession? The authors of a new report from the Urban Institute suggest that the ’96 reform may have a lot to do with it. Here’s how:

  1. Welfare reform made it much harder to get benefits. Meeting work requirements is difficult when there are no jobs to be had, and some families may have already exhausted their lifetime benefits eligibility of five years.
  2. Welfare reform changed the funding structure of the program to a fixed block grant whose real value (adjusted for inflation) has declined 28% in the past fifteen years. Because federal TANF funding does not change from year to year in response to need or economic conditions,** benefit levels are low and caseloads must be limited.
  3. Welfare reform gave states significant freedom in determining how to administer the program and set eligibility requirements, and individual states have exercised this discretion very differently. For example, the share of families living below the poverty line who receive TANF ranges from 8% in Texas to 80% in California. During the recession, some states have significantly increased TANF coverage while others have cut their caseloads.
  4. Welfare reform gave states greater flexibility to spend TANF money on items other than cash assistance, such as job development, childcare, and other poverty-reduction measures. While these measures can help create and support jobs, they do not offer immediate assistance to families in crisis. Currently only 39% of TANF funding is spent on direct cash assistance, compared to 73% in 1997.

While the intent of the ’96 welfare reform – to encourage employment and reduce dependence on government assistance – may have worked well during the strong economy of the late 90s, it reduced the ability of the program to provide a robust response in times of economic crisis. How might Congress make welfare a better tool for helping people weather future recessions?

  • Allow welfare recipients the flexibility to participate in job training and education instead of work when jobs aren’t available.
  • Expand TANF funding in times of need and increase funding each year to keep pace with inflation.
  • Provide increased oversight of state welfare policies to ensure states aren’t making harsh cuts when individuals need welfare the most.

What Role is Welfare Playing in this Period of High Unemployment?
Urban Institute // Sheila R. Zedlewski, Pamela J. Loprest, Erika Huber // August 17, 2011

“A safety net built around work – when there is no work”, The Hill
MDRC // Gordon Berlin // August 22, 2011

**While the stimulus created a $5 billion TANF emergency fund, it was exhausted within a year and has not been renewed.

Welfare Reform At 15

Monday marked the fifteenth anniversary of the landmark 1996 welfare reform, passed with support from both the Republican “Contract with America” Congress and President Bill Clinton. Experts and journalists have been weighing in this week on the reform’s successes and failures, particularly during the current recession.

The basic political belief driving the ’96 reform was that giving low-income people money is counterproductive because it encourages dependence on the government and reduces recipients’ incentives to work. The solution? Require welfare recipients to work (or participate in job training/job development) and place limits on how long they can collect benefits. Just as important as the reform’s stricter requirements for welfare receipt were its changes to the structure of the program. While the previous program, AFDC, was an open-ended entitlement with no funding cap, its replacement, TANF, receives an annual block grant of $16.6 billion in federal funding, an amount that hasn’t changed in 15 years. The ’96 reform also gave states more flexibility in how they administer the program.

Impact of the Reform

TANF has indisputably succeeded at one of its goals: cutting the welfare rolls. Welfare caseloads have declined 60% since 1996, even though the number of families in poverty has been increasing since 2000. While conservatives may laud the reduction in welfare cases, it doesn’t mean that fewer people are poor, just that fewer of them are accessing benefits. In 1996, 68% of families living in poverty were receiving welfare, while in 2009, the figure was just 27%.

Expert opinion on the success of welfare reform in actually reducing poverty is mixed: most agree there was a significant impact in the first few years but many argue that these early gains were almost entirely undone in the past decade.

Ron Haskins, an architect of the legislation now at the Brookings Institution claims it has “been quite successful.” He points to increased employment among women with low-education levels and reductions in child poverty in the first five years after the reform. But many claim these early gains were a product of the booming economy of the late ‘90s more than welfare reform. As LaDonna Pavetti at the Center for Budget and Policy Priorities shows in the graph below, the employment gains among women have steadily disappeared since 2000.

On the poverty front, the percentages of children (20.7%) and families (12.5%) living in poverty in 2009 were almost exactly the same as in 1996 (20.5% and 12.2% respectively). The rates were, however, lower before the current recession began. In 2007 they were 18.0% for children and 10.8% for families, better than in 1996 but not as good as 2000.

The Heritage Foundation, who played a significant ideological role in shaping the ’96 legislation, offers an interesting take on the reform’s success. They claim the spirit of the reform – discouraging dependency and encouraging work – is no longer being implemented and that’s why it hasn’t worked, though they don’t offer much concrete proof of this perspective.

To me, the evidence suggests that during the strong economy of the late 1990s, stricter eligibility requirements and more flexibility in program administration helped encourage some poor people to work and lifted some families out of poverty. But a good part of these gains were undone when the economy slowed and jobs became scarcer in the 2000s. And when the economy collapsed in late 2007, not only were previous gains lost, but the new welfare model was ill-equipped to help families who were struggling in the recession.

I’ll have a post tomorrow on this last point, exploring how welfare has (or hasn’t) worked during the current recession.

TANF at 15: A Weak Safety Net Getting Weaker
TANF at 15, Part I: How Well Does It Provide Income Support for Poor Families?
TANF at 15, Part II:  How Have States Spent Their TANF Dollars?
Center on Budget and Policy Priorities // LaDonna Pavetti // August 19 – 24, 2011

The 15-Year Anniversary of Welfare Reform (video)
Brookings Institution // Ron Haskins // August 22, 2011