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Elizabeth G. Patterson, J.D., State Director  |  South Carolina Department of Social Services  |  P.O. Box 1520  |  Columbia, S.C. 29202-1520
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TANF FUNDING FORMULAS

The federal welfare reform legislation, the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA), was passed in 1996. Prior to this, all states' welfare programs were funded through the Aid to Families with Dependent Children Program (AFDC). The AFDC program was an uncapped federal entitlement program that required states to provide matching dollars to draw down federal funds. Rich states put up lots of state match and pulled down substantial amounts of federal funds. These states ran big welfare programs and provided generous monthly checks to low-income families. Poorer states, like SC, had fewer state dollars to provide as match and consequently received much smaller federal allotments. Welfare checks for low-income families in poor states were significantly lower.

Under PRWORA the AFDC program was ended and the entitlement program was replaced with a block grant. A major hurdle in the passage of PRWORA was determining a formula for allocating federal block grant funds to states. Rich states wanted a formula based on prior receipt of federal AFDC dollars while poor states wanted a formula that equalized federal funds. In the end, federal funds were allocated to states based on the average amount of federal AFDC funds received by the states in a prior three-year period (1993-1995). This was a victory for rich states as it guaranteed that the unequal distribution of federal funds that existed in the AFDC program would continue under the block grant program. Poor states (especially poor southern states) were unhappy with this situation and threatened to pull support from the legislation.

In an effort to placate these states and keep the legislation on-track, the supplemental grant funding was added to the bill. The supplemental grant funding provided an additional federal funding appropriation of 800 million dollars for four years beginning in federal fiscal year 1998 for "qualifying states". The formula provides that each state that qualifies received a grant equal to 2.5% of their federal AFDC drawdown for 1994 in the first year. In each subsequent year the amount of the prior year is increased by the amount received in the first year. (That is, the money doubles in the second year, triples in the third year, etc.) Qualifications for supplemental grants were established so that most states receiving fewer federal dollars in the block grant formula would be eligible for supplemental dollars. States qualified for supplemental grants in two ways, population growth and spending per poor person.

While supplemental grants had the effect of providing some additional funding to the 17 qualifying states, they did little to address the real problems with the TANF funding formula. Basing TANF funding on the prior AFDC formula had the effect of cementing in place the inequities that states experienced in the prior program. Since AFDC grants were based on each state's ability to pay match dollars, and TANF funds are based on AFDC grants, then TANF funds are actually based on the state's economy in 1993. Nine years later, states are still unable to make any change that would result in increased federal dollars. The result of this funding formula is shown in the attached chart. TANF allocations per poor child vary from a low of $411 to a high of $2,744.

Beyond the inequities of basing TANF funds on AFDC grants, the two programs are designed to accomplish vastly different purposes. The AFDC program existed to pay cash assistance checks to needy families. The TANF program was designed to move families from cash assistance to employment. States understood the purpose of TANF and have moved far away from the cash assistance programs. In 2000, states spent less than half of their TANF grants, 49%, on cash assistance. The majority of each states' TANF grant was spent on helping parents attain and retain employment. While welfare payments vary a great deal from state to state, the cost of childcare, transportation, and job training does not, and these are the services states are purchasing with their TANF dollars. Using welfare spending formulas to allocate block grants for a work program is unreasonable and illogical.

The PRWORA expires this year and must be reauthorized to continue funding. Reauthorization provides an opportunity to rectify the funding inequities in the original legislation. TANF funds are intended to help needy families. It makes sense therefore, to allocate funds to states based on need. A revision to the current TANF funding formula is necessary to ensure that poor citizens have the same supports and the same opportunities no matter where they live.

 

Related TANF Information

Letter from Gov. Hodges

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