Third Annual Report to Congress

Introduction and Executive Summary

On August 22, 1996, President Clinton signed the bipartisan welfare reform plan that is dramatically changing the nation's welfare system. The Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996 replaced the old welfare system (AFDC) with Temporary Assistance for Needy Families (TANF), to focus on work and responsibility and to provide States with flexibility to create the best approaches for their individual circumstances. Even before the Personal Responsibility Act became law, many States were well on their way to changing their welfare programs into jobs programs. By granting Federal waivers, the Clinton Administration allowed 43 States -- more than all previous Administrations combined -- to require work, time limit assistance, make work pay, improve child support enforcement, and encourage parental responsibility.

These strategies of requiring work and responsibility and rewarding families who have gone to work are paying off. Since welfare reform there has been a dramatic increase in work participation (including employment, community service, and work experience) among welfare recipients. The percentage of recipients who were working reached an all-time high, 33 percent, compared to less than 7 percent in 1992 and 11 percent in 1996.

This report compiles emerging data about welfare caseloads, family employment and earnings, marriage and two-parent families, out-of-wedlock births, and State policy choices, to give a picture of these first four years of welfare reform. Below are some more extensive highlights describing the information available to date as well as the research underway to learn more.

EMPLOYMENT AND EARNINGS OF NEEDY FAMILIES

There has been a dramatic increase in employment of current welfare recipients. A key measure of the success of welfare reform is its effect on employment. Analysis of all available sources of information shows that the employment rate of current and former TANF recipients has increased significantly.

The percentage of working recipients reached an all-time high in FY99 at 33 percent, compared to less than 7 percent in 1992 and 11 percent in 1996. Thus, over one in three recipients was working in a typical month, the highest level ever recorded and nearly a fivefold increase since 1992. The vast majority of recipients who were working were in paid employment (28% of the total or 85 percent of those working); others were engaged in work experience and community service.

All States met the all-families participation rate standard in FY99, as did the District of Columbia and Puerto Rico. The national participation rate for all families increased to 38.3 percent for FY 1999 from 35.3 percent in FY 1998, even while caseloads continued to decline by 18 percent over the same period.

Of the thirty-six States, the District of Columbia, and Guam that had two-parent family programs subject to a work participation rate, twenty-eight met the FY 1999 two-parent participation standard. The national rate for two-parent families increased to 54.7 percent in FY 1999 up from 42.4 percent in FY 1998.

TANF administrative data just for welfare recipients who remain on the rolls indicate that the average monthly earnings of those employed increased. Earnings increased from about $466 per month in FY 1996 to $533 in 1998 and $598 in FY 1999, increases of 19 and 28 percent respectively.

Although welfare reform is having a positive effect, early data tell an earnings story somewhat more complicated than the employment story. Studies of welfare reform in Connecticut and Minnesota suggest that those programs achieved annual earnings gains in the range of $700-$800 for long-term recipients. However, both programs had no effect on the earnings of recent applicants who were likely to earn more than long-term recipients. The Urban Institute has found the average earnings of those who have left welfare are well above minimum wage - with studies showing hourly wages of $6.60 - $6.80.

MAKING WORK PAY

New research illustrates that a strong commitment to augmenting programs that strongly push parents to work with well-implemented approaches to making work pay can succeed in producing a broad range of improved outcomes for families and children. In general, research on the impacts of welfare reform on family income, food security and hunger, health insurance status, child outcomes, and other family experiences is not providing a definitive picture at this point. However, preliminary reports are promising. The first systematic and rigorous findings on these issues have just been released in an evaluation of a pilot program, the Minnesota Family Investment Plan (MFIP), on which the State's TANF program is based. MFIP produced increased income across a broad range of families. It also produced other consistently positive effects, especially for families headed by long-term recipients, including a reduction in children's behavior problems, and an increase in children's attachment to, and performance in, school. In addition, it dramatically reduced the incidence of domestic violence, a finding that has never been observed in any other rigorously evaluated welfare program. It also increased families' access to child care and health insurance. Finally, it significantly increased the proportion of children living in two-parent families.

TRENDS IN EXPENDITURES AND CASELOADS

States are making significant new investments in the TANF program. The total TANF expenditures (combined Federal funds and State MOE funds) for FY 1999 were $22.6 billion, the same as last year. This level spending seems to indicate that States are making significant new investments in work supports for TANF recipients, since welfare caseloads were declining over the same period and the associated spending on cash assistance was also going down. In FY 1999 the total spending on cash assistance was $13.4 billion compared to $14.6 billion in FY 1998. Total spending on work activities increased 17 % over the $1.5 billion spent in FY 1998. In FY 1998 States spent $1.259 billion of Federal and State funds on child care. In FY 1999 they spent $1.98 billion. By the end of FY 1999 States have expended, transferred or obligated 95% of their TANF funds for fiscal years 1997 - 1999.

There continue to be dramatic declines in welfare caseloads. Overall, the welfare caseload has fallen by 7.8 million recipients, from 14.1 million recipients in January 1993 to 6.3 million in December 1999, a drop of 56 percent since President Clinton took office. This is the largest welfare caseload decline in history and the lowest percentage of the population on welfare since 1965. Caseloads have fallen 49 percent since the enactment of the welfare reform law - 73.2 percent of the entire decline has occurred since August 1996. The percentage of the population on welfare has fallen by nearly half since 1993, dropping from 5.5 percent in FY1993 to 2.3 percent in December 1999. An August 1999 report by the Council of Economic Advisers (CEA) found that the implementation of welfare reform is the single most important factor contributing to the widespread and continuous caseload declines from 1996 to 1998. CEA estimates that the program changes implemented as a result of welfare reform account for approximately one-third of the caseload reduction from 1996 to 1998. The strong economy has also played an important role, accounting for approximately 10 percent of the decline between 1996 and 1998.

HIGH PERFORMANCE BONUS

Twenty-seven States were awarded the FY 1999 high performance bonuses. The overall national results were very impressive. Based on the data from the 46 States that competed for the bonus, more than 1.3 million adults on welfare went to work between October 1, 1997, and September 30, 1998. Retention rates were also promising: 80 percent of those who had jobs were still working in the subsequent three month period. The States also reported an average earnings increase of 23 percent for current and former welfare recipients from $2,088 in the first quarter of employment to $2,571 in the third quarter.

FORMATION OF TWO-PARENT FAMILIES

The recently released final report on the Minnesota Family Investment Plan (MFIP) evaluation has produced the first clear evidence of how a welfare reform strategy can have substantial positive effects on the maintenance and formation of two-parent families. MFIP, which combined strong work requirements for long-term recipients plus generous financial work incentives, increased both the formation and maintenance of two-parent families. Three years after entering the program, almost 11 percent of single parents who were long-term recipients were married compared to 7 percent of a control group who received AFDC. Even more dramatically, 67 percent of two-parent families who entered MFIP were married at the end of three years compared to 49 percent of the AFDC control group, a 38-percent increase.

OUT-OF-WEDLOCK BIRTHS

Five States were awarded bonuses to reward reduction in out-of-wedlock births. On September 13, 1999, hhs Secretary Shalala announced the award of $100 million in new bonuses to five awardees for achieving the nation's largest decreases in out-of-wedlock births between 1994 and 1997. The awardees were Alabama, California, the District of Columbia, Massachusetts, and Michigan. Each jurisdiction received $20 million.

During the 1991-1998 period, teenage birth rates fell in all States and the District of Columbia and the Virgin Islands. Nationally, teen birth rates continued an eight year decline, falling 20 percent from 1991 to 1999 to the lowest levels on record. Declines in the teen birth rate are seen among younger and older teens, married and unmarried teens, all States and all racial and ethnic groups.

The Office of Child Support Enforcement has a preliminary total of 1.5 million paternities established and acknowledged for fiscal year 1999. This is triple the number in 1992 and reflects the same total as reported in fiscal year 1998. The numbers may appear stable due to the new reporting requirements.

INCOME AND CHILD POVERTY

Child poverty has declined from 22.7 percent in 1993 to 18.9 percent in 1998 -- the biggest five-year drop in nearly 30 years. The poverty rate for female-headed families with children has declined from 41.5 percent in 1995 to 38.7 percent in 1998, the most recent year available. This is an all-time low. And the overall poverty rate has also fallen from 15.1 percent in 1993 to 12.7 percent in 1998 -- that's the lowest poverty rate since 1979 and the largest five-year drop in poverty in nearly 30 years.

DEMOGRAPHIC AND FINANCIAL CHARACTERISTICS OF FAMILIES RECEIVING ASSISTANCE

Examining demographic trends over the decade suggests that certain aspects of the caseload have been changing and that most of these changes were larger since 1996. The caseload is now made up of a greater proportion of minorities (most of this mirrors the growing proportion of the overall population that is Hispanic), somewhat older parents with somewhat older children, and a substantially higher proportion of cases where no adult receives assistance. A new report by the Brookings Institution tracks welfare caseloads in the 89 counties that contain the 100 largest U.S.cities. It finds that, over the last five years, welfare caseloads have become predominantly urban. In 1994, when national welfare rolls hit a historic high, 48 percent of welfare recipients lived in the 89 counties. By contrast, in 1999, these counties were home to 58 percent of the nation's welfare recipients.

The average number of persons in TANF families was 2.8 persons. The TANF families averaged 2 recipient children, which remained unchanged. Forty percent of TANF families had only one child. Ten percent had more than three children.

About 29 percent of TANF families had no adult recipients, up about 6 percentage points for the 49 States that reported child-only cases for the October 1997 - September 1998 period. Two-thirds of TANF families had only one adult recipient, and five percent included two or more adult recipients. Fifteen States did not include two-parent family cases in the TANF data reporting system because they placed two-parent families in separate State programs. Between FY 1998 and FY 1999 the number of child-only cases increased, the first such increase since FY 1996.

Ninety eight percent of TANF families received cash and cash equivalents assistance with a monthly average amount of $357 under the State TANF program. Of such TANF families, 81 percent received Food Stamp assistance, which is consistent with previous levels. Also, almost every TANF family was enrolled in medical assistance under an approved State Medicaid plan.

STATE POLICY CHOICES

States are promoting work in their TANF programs through a combination of requirements, incentives, and other policy changes. Under the TANF program, parents or caretakers receiving assistance must engage in work (as defined by the State) within 24 months or less at the State's option. Twenty-eight States require families to begin participating immediately, and 9 other States require participation within 6 months of receipt of cash assistance. Twenty-two States have either no exemption for parents with infants or an exemption that is substantially shorter than the one-year period provided for under Federal law (i.e., 3, 4, or 6 months). In addition, every State has adopted the option to develop Individual Responsibility Plans for recipients.

States have also made a number of policy changes that help to make work pay. The majority of States have changed their policies on the treatment of recipient earnings, by expanding the amount of earnings recipients can keep and/or the period for which earnings disregards are available. Also, the majority of States (33) have removed the additional categorical eligibility requirements that applied to two-parent families under prior law; these changes make it easier for two-parent families to retain benefits when they go to work. Here, we note that many States have focused their benefit expansions on working families; few States have substantially raised their maximum benefit levels (i.e., the amount paid to families with no countable income).

Every State has raised its vehicle asset limit, making it easier for families to own a car that is reliable and can get them to work. In addition, most States have raised their general resource limits. For example, 21 States raised the general resource limit for both applicants and recipients to $2000. More generally, 40 States raised the general resource limit for both applicants and recipients, 4 States raised the resource limit for recipients only, and Ohio no longer has a specified resource limit. Thirty-one States took the option to expand categorical eligibility for food stamps, allowing them to apply more generous TANF asset limits to the Food Stamps program as well. In addition, 30 States have implemented Individual Development Account programs that enable individuals to accrue assets for specified purposes such as purchasing a house or post-secondary education. Several States also allow these accounts to be used to save for a car.

State policies to limit the time that families may receive TANF assistance vary. Currently, 38 States apply a 60-month lifetime time limit; 4 States have a 24-month or shorter lifetime limit (1 of which continues benefits to the children), 3 States have a general 36-month or 48-month lifetime limit. Three States are continuing waivers and do not currently apply a lifetime limit and a few non-waiver States also indicate that they intend to provide benefits beyond 60 months (e.g., by using State funds).

Thirteen States have "intermittent" time limits that deny (or reduce) benefits for a period of time for families that have accrued a certain number of months of assistance. These policies take one of two forms. Some States restrict the number of months a family can accrue during a fixed period of time (e.g., 24 months in a 60-month period). Others make the family ineligible for a fixed number of months once it has accrued a certain number of months of assistance (e.g., a family is ineligible for 12 months once it has accrued 24 months).

Most States provide exemptions to their State time limits that "stop the clock" for categories of families that are not exempt under the Federal statute. The most common State exemptions include: families that have adults or children with disabilities; victims of domestic violence, families with an elderly head of household; and families in which the adult is caring for a small child.

Among the families that most typically receive extensions of their time limits under State policies are: victims of domestic violence, families with adults or children with disabilities, and families that have made a good faith effort to become self-sufficient.

Most State TANF programs have implemented office procedures to assess or screen individuals for barriers to employment such as domestic violence, learning disabilities, physical disabilities, alcohol dependence, drug dependence, depression, and other mental health issues. Thirty-seven States assess or screen for at least four of these barriers. Twenty-four States offer intensive services targeted to meet at least four of these barriers. One State leaves both matters to county discretion.

Most States are offering up-front payments or services to divert families from entering the welfare rolls. To date, 34 States have opted to offer diversion payments or services to families applying for TANF benefits. Most of these States provide lump-sum payments designed to address emergencies and keep families from coming on assistance. States typically restrict such payments to families who agree not to seek additional assistance for a specified period of time. In other States, the diversion program includes job search and related services designed to help the family go directly to work.

The majority of States have certified that they have adopted the "Family Violence Option" to screen and identify victims of domestic violence, refer them to counseling and supportive services, and provide appropriate waivers of program requirements. To date, 38 States have certified that they adopted this provision to assist victims of domestic violence. All other States are providing related services for victims of domestic violence, but have not yet adopted the Family Violence Option.

A number of States have taken steps to devolve program responsibilities to the counties. However, most State programs are still State-administered, and most States have uniform Statewide provisions on matters such as eligibility standards, benefit amounts, and available services.

States are engaging in forums to share information and lessons learned. The Department has sponsored a variety of forums to support these efforts. For example, the Welfare Peer Technical Assistance Network Project gives States an opportunity to link up and share information, as well as to cross-train each other on emerging best practices. Activities sponsored in 1999 covered subject areas such as culture change, diversion, transportation, one-stop centers, service integration, substance abuse, rural partnership building and economic development, and job retention.

CHILD SUPPORT

In 1999, nearly 16 billion was collected for children by the child support enforcement program, an increase of 10 percent from 1998, and double the amount collected in 1992; the federal government collected a record $1.3 billion in overdue child support from federal tax refunds alone. A new program to match delinquent parents with financial records found nearly 900,000 accounts since August 1999 with a total value of about $3 billion. Nearly 1.5 million men acknowledged paternity in 1998, an increase of 12 percent in one year alone and three times as many as in 1992. The Passport Denial Program has collected more than $4 million in lump sum child support payments, and is currently denying 30 to 40 passports to delinquent parents per day in an effort to collect financial support for their children.

Of the $3 billion authorized under the Department of Labor's WtW program, about $350 million has been invested in projects to help unemployed or underemployed non-custodial parents find and keep jobs and increase their earnings. In addition, some States, including California and Idaho, use TANF funds for services to this population. The Clinton-Gore Administration's FY 2001 budget proposes $255 million for the first year of a new "Fathers Work/Families Win" initiative to promote responsible fatherhood and support working families, critical next steps in reforming welfare and reducing child poverty. These competitive grants will help at least 40,000 low-income fathers and 40,000 low-income working families work and support their children.

TRIBAL TANF

By September 1999, Tribal TANF programs were serving approximately four thousand families per month. About 40,000 American Indian families were also served by State governments in Fiscal Year 1999. Some Tribes also operate Native Employment Works (NEW) programs either independently or in conjunction with their TANF programs. Currently, there are 24 approved Tribal TANF plans, with some of them from multi-Tribe consortia.

CHILD CARE

In FY 1999, States transferred a total of $2.43 billion of Federal funds from the TANF program to the Child Care Development Fund (CCDF), which is nearly triple the $914 million transferred in all of FY 1998. In addition, direct State spending through the TANF program on child care services totaled $1.98 billion. The combined amount from transfers and direct TANF program spending on child care was $4.41 billion. Eleven percent of FY 1999 TANF funds were transferred to the child care block grant.

Despite our investments in child care (including an additional $4 billion over 6 years for child care in the welfare reform law), there is still a large unmet need. Recent data show that States across the country are serving only a small percentage of eligible families and report extensive waiting lists and unmet need. Access to Child Care for Low-Income Working Families, a study issued by HHS in October 1999, indicates that in an average month in FY 1998, only 10% of the 14.8 million children eligible for child care subsidies under Federal regulations received such assistance through the Child Care Development Fund. One analysis, Child Care After Leaving Welfare: Early Evidence from State Studies, finds that 50 to 70% of families who have left welfare are now working, but that only about 30% are receiving assistance in paying for child care.

RESEARCH AGENDA

HHS is committed to ensuring that the nation has the answers to major questions regarding welfare reform. These questions can only be answered through rigorous and systematic studies. HHS's welfare reform research agenda has two broad goals: to increase the probability of success of welfare reform by providing timely, reliable data to inform policy and program design, especially at the State and local level where decision making has devolved; and to inform the nation of policies chosen and their effects on children, families, communities and social well-being.