Enhance States' Flexibility to Reward Work and Benefit Children

Although poverty reduction was not a TANF goal in 1996, most states' conforming legislation included earnings supplement provisions designed to reward work and raise family income. Now the new bill is proposing to make improving the well-being of children an addi-tional overarching purpose of TANF. New research evidence shows that earnings supplement programs increase employment and income and that, when the supplements are generous, elementary school-aged children benefit (although adolescents do not). These are the only reliable findings pointing the way to improvements in young children's well-being, and thus to accomplishing the Bush administration-backed reform bill's new goal. Moreover, by tying cash payments to earnings, these programs have cut through the dilemma that has baffled welfare policy since the English Poor Laws: No longer do payments to poor families inevitably mean less work effort. This development has enabled states to refocus on welfare's original purpose - to help children - without reducing the self-sufficiency efforts of their parents. Thus, states can now choose between program strategies that emphasize caseload reductions and strategies that emphasize benefits for children, without jeopardizing the program's focus on increasing paren-tal employment.

Several aspects of the current law, however, make it difficult for states to craft strategies that benefit children. At the heart of the problem is the inherent conflict between earnings supplement and time-limit policies. Time limits tell recipients to "get a job, leave welfare, and bank your remaining months of eligibility." Earnings supplements tell recipients to "get a job, stay on welfare, and let welfare supplement your earnings." Implementing the two policies together virtually guarantees that a substantial number of people who take jobs while on welfare will unwittingly exhaust their months of welfare eligibility.

To avoid this outcome, states have two choices. One is to use the federally required state maintenance-of-effort dollars to create a separate, or "segregated," state program for the working poor. By relying on state funds instead of federal funds, the federal time-limit clock is not ticking. The second option is to classify earnings supplement benefits as "nonassistance," a categorization that allows certain payments such as employer subsidies, job retention bonuses, and work expense payments not to be considered assistance under TANF and, thus, not to be counted against the time-limit clock. Unfortunately, both strategies have shortcomings. The first places the fiscal burden of paying for supplements entirely on the state. The second exposes states to federal audits and the risk that the federal government will not accept the states' definition of nonassistance. Without assurance of federal TANF reimbursement for long-term earn-ings supplement payments, states have been reluctant to choose these options.

TANF reauthorization could end these risks either by allowing states the option of stopping the federal time-limit clock when recipients take full-time jobs or by expanding and clarifying the definition of nonassistance to include ongoing cash payments or earnings supplements made to full-time workers. The administration's proposal to clarify what counts as nonassistance presents such an opportunity. Either strategy would enable states to create separate programs with federal financial participation to pay earnings supplements to the working poor outside the welfare system, effectively resolving the inherent message conflict that now exists between time limits and incentives, without fear of losing federal reimbursement. In a fixed-block-grant environment, this change would have no federal fiscal implications.

While the means appear arcane, the end is eminently clear. Message confusion between time limits and earnings disregards undermines both program strategies. By giving states greater latitude and the promise of federal financial participation when they choose to run separate programs for the working poor, time limits would continue to apply to welfare recipients who were not working, while earnings supplement policies could reward those who do the right thing and take jobs. And if the resulting state programs are sufficiently generous, available evidence suggests that better school performance among elementary school children would result.

The income of low earners would also be bolstered by ensuring that qualified workers receive the Food Stamp, health insurance, and child care benefits for which they remain eligible. Congress has built a safety net around work, but studies that have followed welfare leavers have found that fewer than half of the low-wage workers who qualify for these benefits receive them. Some job-takers, unaware that they remain eligible for a range of benefits, do not stay in contact with the welfare office after they get jobs; other recipients are inadvertently cut off by the stringent quality-control system's penchant for unnecessarily penalizing cases with earnings. The administration's proposed changes to the Food Stamp Program would make it substantially more worker-friendly; similar changes could be beneficial in the health insurance and child care areas. To the extent that low-income families who are not former welfare recipients obtain these work-support benefits, inequities between this group and former welfare recipients would diminish. Back to summary of policy implications