States, Feds Skimp on Traditional Welfare Spending

08/08/2012 12:37 pm ET | Updated Oct 08, 2012

According to a new report by the Center on Budget and Policy Priorities, states are using welfare law loopholes to divert money from spending on the needy in order to fill budget gaps. In some cases, they avoid increasing spending on the poor by claiming expenditures (sometimes by third parties) on areas other than cash assistance and work placement support. These other expenditure categories, such as child welfare and early education, technically count as spending on welfare under current law but states were sometimes already spending money on them without counting them as welfare dollars. The report also highlights other ways that federal and state spending is not meeting the needs of the poorest Americans.

The current clamor over welfare centers on President Obama's approval of a move to allow work requirement waivers for certain states that have become bogged down by the administrative record keeping of the work requirement enacted by the 1996 welfare reform law. Yet the spending report by the Center on Budget and Policy Priorities, a non-partisan think tank, reveals that there are much broader problems with welfare than administrators' frustrations with counting work requirements instead of focusing on work outcomes, as big a problem as this is. As poverty expert and Georgetown law professor Peter Edelman wrote recently in The New York Times, the percentage of children in poor families receiving welfare has shrunk from two-thirds in the mid-90s to a little more than one-fourth today. Yet 46.2 million people live in poverty in America and 22 percent of children live in poverty, the highest percentage since 1993. The spending report highlights how a once strong social safety net has been eviscerated.

The report reveals that the $33.3 billion in overall expenditures on the federal block grant welfare program, Temporary Assistance for Needy Families (TANF), has not substantially grown in real dollars since funding ramped up in 1998, when its funding level was $27 billion. The nominal dollar spending by states, called maintenance of effort (MOE) because it represents fixed spending figures from the prior welfare law, rose from $10 billion per year in the late '90s to $15 billion in 2009 mostly because "states have become more aggressive in claiming and counting existing state or local governmental or third-party (i.e., non-governmental) spending as MOE," the report states. Thus, the small increases in spending on welfare at the state level reflect more clever accounting practices. "While many of these may be worthy expenditures, the more broadly TANF funds are spread, the fewer resources are available to provide basic assistance and to fund work services and supports that can help recipients find and maintain employment," the report states.

It is no surprise that spending on basic assistance declined dramatically in the 15 years since welfare reform became law, as this was one of the aims of the law. According to the report, basic assistance expenditures have decreased from $14 billion in 1997 to $9.6 billion in 2011, a 50 percent decrease in inflation-adjusted dollars at the same time today's unemployment rate dwarfs the 5 percent rate of 1997. Yet surprisingly the amount of funding for work activities, the cornerstone of the welfare reform law, has also remained stagnant now that the recessionary TANF Emergency Fund has run out. From 2000 to 2009, funding for work activities decreased 26 percent in inflation-adjusted dollars, and now constitutes $3.1 billion, the report states.

The authors of the report point to the nature of the block grant program as one explanation for how funding has remained so stagnant at the federal level. According to Liz Schott of the Center on Budget and Policy Priorities, "TANF is a block grant, which means that states get a fixed amount of federal funding from the federal government. And that same dollar amount, in nominal dollars, is the same as it was in the first year in 1997. It's based on the historic amount of money that the feds were giving states for their AFDC (Aid to Families with Dependent Children) program," she said. AFDC was the precursor to today's welfare system.

But the other problem with welfare today is how the scant dollars are spent, which is largely determined by the block grant set-up as well. In 2011, the share of federal and state spending for work activities was 9.4 percent of the total, and basic assistance accounted for 29 percent of total federal and state spending. Thus, more than 60 percent of federal and state spending is used for other activities. Block grants allow states much more flexibility in choosing how money is spent. "AFDC, like Medicaid, was a matched program," Schott said. "There's some federal money, some state money. When you kind of transition from a matched program to a block grant, they had to figure out what do we do to create the equivalent of the state match in a block grant scenario. So the TANF money is TANF and MOE. States can use that money for a much broader array of things than they spent the money on under AFDC. Under AFDC it was almost basically all cash assistance and a little bit of work program or childcare money. Now they can use it for anything that meets the four purposes of TANF... So states are using that money much more broadly."

While addressing state spending requirements could be helpful in obviating the problem of expenditures not being directed toward their most effective uses, curtailing block grants could do even more good. That block grants entice states to use creative accounting because of fixed funding levels speaks to the need to move away from these means of funding. "I think that the lesson from TANF is really important to keep in mind when Congress starts talking about block-granting Medicaid or food stamps," Schott said. "And you see what's happened in TANF with the frozen funding, with the declining of how it's used for safety net purposes, with states being caught in a really tight place when need goes up and they're not getting any more money. I mean it's really turned out to be not such a good deal for states in some ways."

Welfare spending will also need to be increased in light of the stagnant funding levels, not to mention the slowly recovering economy and increased poverty level. Yet in a political atmosphere that is addicted to spectacle and in which both parties seem to be fixated on reducing deficits, one wonders how long it will take for those in need of help to receive it.