LUMP SUM PAYMENT PROGRAMS
Lump sum payment programs are one of the formal program options states have established to divert families from the TANF rolls. Lump sum payments are generally made available to TANF applicants with short-term emergency needs that can be solved permanently with the payment. It is anticipated that these applicants will not require further TANF assistance after the immediate need is resolved. In almost one-half of the states with this program, eligible applicants must have work-related needs directly affecting their ability to obtain or maintain employment such as loss of transportation due to needed car repairs. In the remaining states, eligible applicants can have a range of short-term or emergency needs such as overdue rent or utilities bills and child care problems that, if left unaddressed, will shortly put them at risk for requiring TANF assistance.
Under lump sum payment diversion programs, caseworkers screen TANF applicants to determine if a lump sum payment can address the immediate reason for the TANF application and will likely resolve the crisis permanently. Caseworkers must either find potential recipients of a lump sum payment eligible for TANF, or have gathered enough information during the initial application process to presume TANF eligibility. Accepting the lump sum payment in lieu of TANF benefits is not mandatory. On the other hand, accepting this diversion payment generally results in the applicant being ineligible to reapply for TANF benefits for a certain period of time. Although a number of states do allow recipients of lump sum payments to reapply for TANF benefits before the period of ineligibility has expired, such situations usually result in some type of penalty such as a requirement that a portion of the lump sum payment be repaid or a reduction in the applicant's lifetime TANF limit based on the amount of the lump sum.
B. Twenty States Currently Operate Lump Sum Payment Diversion Programs
As shown by Table II-1, twenty states are currently operating lump sum payment programs formally designed to divert TANF applicants from receiving ongoing assistance. An additional three states have developed program designs and plan to begin their programs before the end of 1998. Alaska and Nevada will implement their programs on July 1, 1998 and October 1, 1998 respectively and Rhode Island will establish a pilot program in selected areas of the state by the end of 1998. Four states not shown in Table II-1, Connecticut, the District of Columbia, New Jersey and Vermont, are in the very early stages of developing lump sum diversion programs. Arizona state law allows the development of such a program but it has not been implemented because of concerns about guaranteeing transitional Medicaid benefits to persons who receive a lump sum payment. In addition to the 20 states that have already implemented lump sum diversion programs, the remainder of this discussion will include the programs in Alaska, Nevada, and Rhode Island because, even though these state have not yet implemented their lump sum diversion programs, they have developed specific designs for their programs.
Few states have had extended experience with lump sum diversion programs. As illustrated by Table II-l, most states implemented their programs within the last three to fourteen months or since late 1996. Montana, Utah and Virginia are the exceptions to this with Utah implementing the first state lump sum payment diversion program in January 1993, Virginia implementing the second such program in July 1995, and Montana implementing the third in February 1996.
In 18 of the 20 states that have lump sum programs already in operation, the programs are available on a statewide basis. Of the remaining two states, Iowa currently operates its lump sum program in three counties with no immediate plans for expansion; and Texas currently operates its lump sum payment program in one county but plans to expand the program to 15 counties in April 1998 and go statewide in August 1998.
C. Who Is Eligible for Lump Sum Payments
In general, the eligibility criteria for lump sum payments require that the TANF applicant have a short-term need that can be resolved by the lump sum payment and that, as a result of receiving the lump sum payment, the applicant will have no immediate or future need for TANF assistance.
There is some variability among the states with respect to who can be considered for lump sum payments. Eleven states - Alaska, Arkansas, Iowa, Maine, Montana, Nevada, North Carolina, Rhode Island, South Dakota, West Virginia and Wisconsin - specifically require that TANF applicants considered for lump sum payments have an employment-related need that when solved will allow the applicant to obtain or maintain employment. For example, in South Dakota, only applicants with current employment or the potential for immediate employment and a strong work history are considered for the lump sum payment. In Arkansas, lump sum payments are considered only for applicants who are currently employed but have a problem jeopardizing that employment or for applicants who are promised a job but need assistance securing the job. In Wisconsin, an applicant can be considered for a "Job Access Loan" for any need that is job-related - including payment of rent if an applicant is likely to be evicted and lose their employment as a result of having nowhere to live.
The remaining states do not use the employment-related eligibility criteria and all TANF applicants can be considered for lump sum payments. An exception is Utah where only those applicants who are single parents or who come from a two parent family where one parent is incapacitated can be considered for lump sum payments.
There also appears to be some variability among the states with respect to how much discretion is afforded to caseworkers in determining who is eligible for lump sum payments. In six states - Alaska, California, Idaho, Maryland, Rhode Island and Wisconsin- caseworkers are explicitly given discretion within broad eligibility criteria to determine which TANF applicants are appropriate for lump sum payments. Five other states - Florida, Nevada, Utah, Virginia, and West Virginia - emphasize a collaborative approach between the caseworker and the TANF applicant to determining the appropriateness of participating in the lump sum payment program.
In all states, appropriate candidates for lump sum payments must also be determined as eligible, or likely to be eligible, for TANF assistance. Given this, it is also important to note that participation in lump sum payment diversion is described as voluntary in all states. TANF applicants who are determined eligible for lump sum payments can choose not to accept these payments in lieu of TANF assistance. There are reportedly no negative consequences for exercising such a choice.
D. What is Required for the Application Process
The process of diverting TANF applicants from going on the TANF rolls by assessing their potential eligibility for lump sum payments can also affect the TANF application process. There is substantial variability among the states with respect to what is required for the application process.
Nine states - Colorado, Idaho, Maine, Maryland, Montana, Rhode Island, Texas, Virginia, and Washington, require that individuals fully complete the TANF application and eligibility verification process before the lump sum payment will be authorized. The remaining states use a range of approaches to processing the authorization for lump sum payments and most require that applicants provide just enough information for the caseworker to presume the likelihood of eligibility for TANF assistance. Seven of these states - Alaska, California, Florida, Minnesota, Nevada, South Dakota, and Utah - do not explicitly require income verification Even where income verification is not required and limited information is acceptable, states may require that the TANF application be completed - this is clearly the case in Minnesota. For most of the states requiring limited information, however, the TANF application is not likely to be completed or the completed application may be withdrawn when lump sum payments are authorized.
This variability in the application process may be greater in states where counties are primarily responsible for administering the lump sum payment programs. Six states - California, Colorado, Iowa, Maryland, North Carolina and Wisconsin - have provided for county administration of these diversion programs. Counties in these states have been given substantial discretion in determining how they implement and administer the lump sum payment programs. This discretion will no doubt affect how the application process is handled.
There are reasons to be concerned about the variability in the application process, particularly with respect to whether or not a TANF application may be completed or withdrawn. Given that all states reported using a joint application for TANF and for other benefits such as Medicaid and Food Stamps, a withdrawn or incomplete application raises the issue of whether the application for these other services is processed when an applicant is diverted with lump sum payments. Although most states asserted that a TANF applicant's application for Medicaid and Food Stamps is processed immediately and thoroughly notwithstanding their status as a diverted recipient, there could be an increased likelihood of diverted applicants' eligibility for Medicaid "falling through the cracks" in states where a diverted applicants' TANF application is not completed or withdrawn. Interviews with states that only collect limited applicant information suggest that some lump sum recipients may not be offered additional services for which they may otherwise qualify.
South Dakota provides an example of an unusual approach to administering the lump sum payment program that could create the potential for lump sum recipients not to receive the additional services for which they may be eligible. In South Dakota, only applicants who are not exempt from work requirements may be considered for lump sum payments. These applicants must be processed by the Department of Labor (DOL) where they are also screened for lump sum payment eligibility. If the applicants accept diversion payments, then the DOL must ensure that the applicants either go or return to the Department of Social Services (DSS) office to complete the full application for Medicaid and Food Stamps. Applicants who receive diversion payments do not complete the TANF application and are recorded in the state's information system as either an incomplete or denied application due to receipt of diversion.
E. The Lump Sum Payment
The process of screening TANF applicants for their potential eligibility for lump sum payments involves 1) determining what the immediate needs of the applicants are and how many of these needs can be addressed by lump sum payments, and 2) determining how the lump sum payments will be made. This section describes these characteristics of lump sum payment programs as reported by the states: how much can applicants receive in lump sum payments, for what purpose can these payments be used, in what form are the lump sum payments awarded, and how often can one apply for these payments. These program dimensions can also be found in Table II-1.
How Much Applicants Can Receive in Lump Sum Payments
The general approach used by the states is to set a ceiling, i.e. a maximum amount, for the lump sum payment potentially available to a TANF applicant and then determine the actual payment amount based on the diverted applicant's specific needs. These maximum amounts are most frequently calculated as multiples of the monthly TANF benefit as shown in Table II-1. In eleven states, the maximum payment is three times the monthly TANF benefit, in three states the maximum payment is twice the monthly benefit, and in two states it is four times the monthly benefit. Two states, Kentucky and Texas offer a flat amount as the maximum payment, $1500 and $1000 respectively. A few states allow for lump sum payments in excess of the maximum amount. If an applicant in Maryland has compelling needs as determined by the caseworker, then supervisors can approve up to 12 months of lump sum payments. An applicant can not receive more than the $1500 ceiling in Kentucky during the 12 month period. Nevada also plans to allow applicants with special circumstances to receive more than the maximum amount subject to an administrator's approval.
Table II-1 also shows the maximum amount for lump sum payments as calculated for a family of three in each state. The amount ranges from $606 in Florida to $1638 in Washington to $3052 in Minnesota.(1) This wide range reflects the variability in the TANF monthly benefit levels across the country as the states, similar to the AFDC program which TANF replaced, set their own standards of need and benefits levels for their TANF programs.
How Can the Lump Sum Payments Be Used
Sixteen of the 20 states with operating lump sum payment programs allow the lump sum payments to be used to address any short-term need in order keep the family off the TANF rolls and help the family attain or maintain self-sufficiency. These short term needs can include a wide range of expenses or debts such as child care, car repairs, medical bills, clothing, rent, utility bills, and work uniforms or tools. In Maryland, lump sum cash payment was used to assist a TANF applicant in purchasing a license required by state law to sell used cars. In Washington, lump sum payments were used to assist in the start-up of a small business.
Six states - Arkansas, Iowa, Nevada, Rhode Island, South Dakota and Wisconsin - specify that lump sum payments can only be used to address employment-related needs.(2) In Nevada, for example, the lump sum cash payment could be provided to a TANF applicant living in a remote area who has a job offer elsewhere and needs help with moving expenses. The payment could also be used to purchase work clothing, obtain a license, or repair a vehicle. In South Dakota, the lump sum payment program is viewed as a work-related support service and is considered appropriate only for individuals with strong work histories who are employed or are about to be employed. Payments can only be used for specific expenses primarily related to keeping or getting a job.
Several states require, before authorizing an amount for lump sum payments, that specific needs be documented with bills, receipts, or other evidence of expense and that caseworkers approve each expense for which the lump sum will be used. Minnesota requires such documentation of specific needs, and in Arkansas caseworkers must verify how the lump sum payment was used. In Nevada, the lump sum payment amount must be supported by documentation and the caseworkers' final determination must be approved by a supervisor. Caseworkers in West Virginia can get involved in negotiating the amount of an expense, e.g., car repair estimate, to ensure that the expense is not in excess of the maximum amount available. In Kentucky, the proposed lump sum payment must meet a short term need such as transportation, housing or an employment-related need and must be verfied by the caseworker.
On the other hand, some states require little verification of applicants' needs and documentation of how the lump sum payments are actually used. In Florida there is no verification process and no follow-up on how the payments were spent. In Montana, while up-front verification of expenses/needs is required, the state does not require verification that the lump sum payment was actually used for the verified expenses/needs.
In most states, the assessment of applicants' short-term needs and the calculation of the amount of lump sum payments occur at one point in time during the screening process. A few states, however, have created a window of time during which an applicant who has received lump sum payments may return for additional payments. In Washington, for example, an applicant is considered eligible for lump sum diversion for one month. If the initial lump sum payment is less than the maximum amount ($1638 for a family of three), then a recipient may seek assistance for other eligible expenses during that month - effectively "drawing down" on the maximum amount. Utah and Kentucky use a similar approach for its lump sum payment program; in Kentucky the "window" for drawing down the $1500 maximum amount is 12 months and in Utah the "window" for drawing down the $1278 maximum is four months.
How Lump Sum Payments Are Made
The lump sum payments are made available to recipients in three forms: cash, vouchers, and third party payments. The states' choices about how lump sum payments are made could be related to their decisions about how rigorously to verify applicants' needs and document the use of the lump sum payments. The use of vouchers and third party payments affords the states greater assurances that the lump sum payments will be used for their intended purposes than the use of cash payments given directly to the recipients.
However, while the states generally reported using a combination of cash, vouchers, and third party payments depending upon the nature of the expense, most states appeared to prefer the use of cash payments over vouchers and third party payments. Only four states out of the 20 states with operating lump sum payment programs have an explicit preference for non-cash payments: Maine and Washington use only vouchers; Minnesota prefers to use vouchers but will occasionally allow a cash payment; and South Dakota prefers vouchers or vendor payments - cash payments are very rare. Four states, Florida, Idaho, Utah and Wisconsin, use only cash payments.
How Often One Can Receive Lump Sum Payment Assistance
As illustrated by Table II-1, there is substantial variability among states regarding how often a family can receive lump sum cash payments. Eight states have a "one time only" policy essentially meaning that families can receive lump sum payment once in a lifetime. Five states do not specify a limit for how often applicants can receive a lump sum payment. Washington, Kentucky, North Carolina, and Alaska allow applicants to receive lump sum payments once a year; Minnesota allows applicants to receive lump sum payments every three years; and in Utah families can apply every four months to receive lump sum payments.(3) In California, Colorado and Iowa, the limits will likely vary because these decisions are made at the county with no guidance from the state.
F. Cost/Trade-offs Associated with Receiving Lump Sum Payments
The process of determining applicants' eligibility for lump sum payments also involves informing the applicants of the costs or trade-offs associated with electing to be diverted and to receive these payments in lieu of TANF assistance. As reported by the states, these costs or trade-offs include: 1) a period of ineligibility during which one cannot reapply for TANF assistance, 2) a period of ineligibility during which one can reapply for TANF assistance subject to certain penalties, e.g., repayment of the lump sum, 3) penalties automatically triggered with any future application for TANF assistance, e.g., reduction of the lifetime limit and 4) full repayment of the assistance provided.
All twenty states operating lump sum payment programs impose some type of potential cost or penalty for diverted families receiving lump sum payments if they apply for TANF benefits in the future. Only Kentucky reports no cost or penalty. While Wisconsin requires full repayment of any "Job Access Loan" they provide, the repayment terms do not affect eligibility for other services provided through TANF.(4)Table II-1 shows the penalty provisions reported by the states. As noted above, participation in the lump sum payment diversion is voluntary for TANF applicants; the existence of potential penalties may affect their decisions to participate. Consequently, the extent of the costs/trade-offs associated with accepting a lump sum payment in each state may be an indicator of the states' expectations about 1) how carefully TANF applicants are screened for eligibility for lump sum payments to ensure that only relatively stable families are assisted and 2) whether large numbers of TANF applicants will or should actually be diverted with lump sum payments.
Duration of Periods of TANF Ineligibility:
Seventeen of the 20 states operating lump sum payment programs impose limits on TANF eligibility as a penalty for diverted families accepting lump sum payments; these families become ineligible to reapply for TANF benefits for a prescribed period of time. In Colorado, Kentucky, and Iowa, decisions about the specific periods of TANF ineligibility are made at the county or local level.(5) There is significant variability among the states with respect to how these periods of ineligibility are determined.
The length of these periods of ineligibility is most frequently determined as a function of how much lump sum assistance was received by families relative to the standard monthly TANF benefit. Nine states - California, Idaho, Iowa, Maryland, Minnesota, Montana, Nevada, Rhode Island, and Virginia - use this approach although there is variability within this common approach. For example, in California, Maryland, Minnesota, and Nevada, the period of ineligibility is determined by calculating how many months of TANF assistance are represented by the amount of lump sum payments received. For example, if a family of three in Montana receives $900 in lump sum payments, then they are ineligible to apply for TANF assistance for two months. In Idaho, Iowa, Montana, Rhode Island, and Virginia, the period of ineligibility is a multiple of the number of months of TANF assistance is represented by the amount of lump sum payments received. For example, if a family of three in Rhode Island receives $1108 in lump sum payments, then they are ineligible to apply for TANF assistance for four months, i.e., two months of ineligibility for every month of assistance received through a lump sum payment. Montana uses this same approach.
Nine states - Alaska, Arkansas, Florida, Maine, South Dakota, Texas, Utah, Washington, and West Virginia - require a set period of ineligibility unrelated to the amount of assistance received in lump sum payments. The most common period is three months; six out of the nine states use this approach. Washington and Texas both require for a 12-month period of ineligibility. Although Kentucky also requires a 12-month period of ineligibility for TANF assistance, the effect of this state's period of ineligibility is not relevant to a discussion of costs/trade-offs because, as noted above, Kentucky imposes no penalties on individuals reapplying for TANF assistance after receiving lump sum payments during this 12-month period although certain criteria must be met to be eligible again.
Several states reported that, during the screening process for lump sum diversion, efforts are made to inform TANF applicants about the potential costs associated with receiving lump sum payments. For example, in Montana, families who accept a lump sum payment sign an agreement stating they understand that they are ineligible for TANF benefits for a certain number of months.
Cannot Apply for TANF Assistance During Period of Ineligibility
Nine states - Idaho, Maryland, Minnesota, Montana, Nevada, Rhode Island, Texas, Virginia, and West Virginia - do not allow applicants to reapply for TANF until their period of ineligibility has expired. As previously discussed, the length of the periods of ineligibility in these states is primarily a function of how much lump sum assistance was received but can be as long as 12 months in Texas and six months in Idaho. Texas is the only state that explicitly provides for an exception to this period of strict ineligibility in situations where children are adversely affected.
Can Apply for TANF During Period of Ineligibility Subject to Repayment Requirement
Ten states - Alaska, Arkansas, California, Colorado, Florida, Maine, North Carolina, South Dakota, Utah, and Washington, allow recipients of lump sum assistance to reapply for TANF assistance during the period of ineligibility.(6) These state impose a repayment penalty on families who reapply. These penalties range from requiring recipients to repay the entire amount of the lump sum payment before receiving any TANF assistance to requiring recipients to repay a portion of the lump sum payment over a period of time concurrent with receipt of TANF assistance
How Much Must Be Repaid: One state - Washington - allows lump sum recipients to prorate the amount of their repayment. The amount of the lump sum payment is prorated over the 12-month period of ineligibility and is reduced by the number of months the recipient remained off TANF. For example, if a recipient of a $1200 lump sum payment applied for TANF six months later, her repayment amount would $600. Eight states - Alaska, Arkansas, California, Florida, Maine, North Carolina, South Dakota and Utah - require that the entire amount of lump sum payment assistance be repaid.(7)
How Repayment Is Made: Eight states - Alaska, Arkansas, California, Maine, North Carolina, South Dakota, Utah, and Washington - allow families to prorate how they make their repayment. Prorated repayment is generally accomplished by affecting a partial reduction in future TANF benefits until the amount is recouped. In Maine, for example, TANF payments are reduced by ten percent until the family has repaid the diversion assistance amount. In South Dakota on the other hand, repayment must be made within three months, even if it means that the recipient receives no TANF assistance. Utah uses the same approach to repayment although families only repay the amount equal to what their TANF grant would have been during those three months, i.e., a family may not have to repay entire amount of lump sum diversion. In California, families may choose between a partial reduction in future TANF benefits sufficient to accomplish repayment or a reduction in their lifetime limit equal to the repayment amount. Only one state - Florida - requires that the entire repayment amount be paid before families can receive TANF assistance.
Automatic Costs/Penalties Associated with Receiving Lump Sum Payments
Automatic penalties refer to circumstances where certain "costs" are immediately associated with receipt of lump sum payments and are not a function of whether reapplication for TANF assistance occurs during a period of ineligibility. In Idaho, Nevada, and West Virginia, for example, the amount of the lump sum assistance is translated into the equivalent number of months of TANF assistance and automatically applied against the recipient's lifetime TANF limit. In Idaho this reduction occurs at a rate of "two for one," i.e., the equivalent number of months of TANF assistance is doubled and then applied against the recipient's lifetime TANF limit. In Utah, on the other hand, families are assessed one month against their lifetime TANF limit for each episode of diversion assistance.
One other state imposes a different form of automatic penalty. In Arkansas, if lump sum payment recipients ever reapply for TANF assistance, they face a choice: either repay the entire amount or have the amount applied against their lifetime limits for TANF benefits. Lump sum recipients reapplying within the 100-day period of ineligibility must repay the entire amount.
G. State Approaches to Lump Sum Payment Programs As Formal Diversion
The foregoing discussion illustrates that there are numerous components of lump sum payment programs and a variety of ways in which states have chosen to structure these diversion programs. How these programs are structured can suggest something about the role played by lump sum diversion within the states' overall approach to welfare reform.
States can be characterized as making it easy for TANF applicants to be diverted where the lump sum payment program policies use relatively broad eligibility criteria, allow lump sum payments to be used for more than just work-related needs, and don't impose stringent repayment requirements or other penalties on lump sum payment recipients. States can also be seen as deliberately limiting the number of participants in their lump sum payment programs when the program policies use very specific eligibility criteria, limit the use of lump sum payments to work-related needs, and impose onerous repayment requirements and automatic penalties.
The components of lump sum payment programs may indicate that the states view such programs primarily as supports for obtaining or maintaining employment, or suggest that the states view their program as means to expand emergency assistance for short-terms needs of families without reducing these families' lifetime TANF limits. States can opt for more or less oversight on how recipients use the lump sum payments or on how programs are administered at the county level.
The following brief descriptions provide four examples of the various approaches taken by states to structuring their lump sum payment programs.
Florida: Florida's lump sum payment program represents an unusual combination of 1) being among the most relaxed in terms of determining family needs and monitoring the use of the lump sum payments, and 2) having among the most stringent repayment terms if reapplication for TANF assistance is made during the three-month period of ineligibility - the entire amount must be entirely repaid before receiving further assistance. The state emphasizes a collaborative approach between the caseworkers and the families in determining whether to participate in the program. Families can only participate in the lump sum program one time.
Idaho: Idaho's lump sum payment program is unique in that it imposes the most severe automatic penalty on lump sum payment recipients: a two-for-one reduction in the recipients' lifetime limit of 24 months of TANF assistance. The program also imposes among the most severe restrictions on eligibility for TANF assistance following receipt of lump sum assistance: a two-for-one period of ineligibility during which families cannot reapply for assistance. Caseworkers explore every other option with applicants before they consider lump sum payment. The applicants' circumstances are reviewed very carefully to determine if a lump sum cash payment is the best option for them. Applicants are expected to consider fully the penalties associated with lump sum payments before agreeing to be diverted; they can only participate in the lump sum payment program one time.
Kentucky: Kentucky's program is unique because applicants may draw down the maximum lump sum payment - $1500 - over a 12-month period as long as they present eligible expenses. (Washington is the only other state where a recipient can draw down the maximum amount.) Although Kentucky has a 12-month period of ineligibility for TANF assistance, families can reapply for assistance during this period without a repayment penalty when there is job loss through circumstances beyond the person's control or an unexpected problem affecting the person's ability to care for their children. Caseworkers are expected to interpret these exceptions liberally because the state is not interested in unduly penalizing diversion recipients.
Minnesota: Minnesota's maximum lump sum payment amount is the highest among the states: $3052. Minnesota uses third party payments to distribute the lump sum payments; eligible families are almost never given cash. This form of diversion is intended to be used very infrequently and only for families who will be stabilized permanently; Minnesota has a substantial emergency assistance program for which a family would be considered first. Families receiving lump sum assistance are ineligible for TANF assistance for a period equivalent to number of months of TANF assistance represented by the amount of the lump sum - a maximum of four months. The period of ineligibility is absolute, there are no exceptions for reapplication. A family cannot receive lump sum payment assistance again for three years.
2. It is useful to point out the distinction between the eligibility criteria in ten states that require applicants to have work-related needs and the restrictions on how lump sum payments can be used in five states that require work-related needs. In five states with the work-related eligibility but not the work-related restriction on lump sum payments, while applicants must have work-related needs, the lump sum payments can also be used for other needs.
6. Colorado is again included in this list. Although no specific provisions are shown in Table 2, it is assumed that the counties in this state will require repayment for reapplication during the period of ineligibility.