Description and Assessment of State Approaches to Diversion Programs and Activities Under Welfare Reform. F. Cost/Trade-offs Associated with Receiving Lump Sum Payments

08/01/1998

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.