Aid to Families with Dependent Children (AFDC) was established by the Social Security Act of 1935 as a grant program to enable states to provide cash welfare payments for needy children who had been deprived of parental support or care because their father or mother is absent from the home, incapacitated, deceased, or unemployed. All 50 states, the District of Columbia, Guam, Puerto Rico, and the Virgin Islands operated an AFDC program. States defined "need," set their own benefit levels, established (within federal limitations) income and resource limits, and administered the program or supervised its administration. States were entitled to unlimited federal funds for reimbursement of benefit payments, at "matching" rates which were inversely related to state per capita income. States were required to provide aid to all persons who were in classes eligible under federal law and whose income and resources were within state-set limits.
During the 1990s, the federal government increasingly used its authority under Section 1115 of the Social Security Act to waive portions of the federal requirements under AFDC. This allowed states to test such changes as expanded earned income disregards, increased work requirements and stronger sanctions for failure to comply with them, time limits on benefits, and expanded access to transitional benefits such as child care and medical assistance. As a condition of receiving waivers, states were required to conduct rigorous evaluations of the impacts of these changes on the welfare receipt, employment, and earnings of participants.
The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) eliminated the federal entitlement to cash assistance under AFDC, and replaced AFDC cash welfare and other related programs (AFDC administration, the Job Opportunities and Basic Skills Training (JOBS) program and the Emergency Assistance program) with a cash welfare block grant called Temporary Assistance for Needy Families (TANF). Key elements of TANF include a lifetime limit of five years (60 months) on the amount of time a family with an adult can receive assistance funded with federal funds, increasing work participation rate requirements which states must meet, and broad state flexibility on program design. Spending through the TANF block grant is capped and funded at $16.4 billion per year, slightly above fiscal year 1995 federal expenditures for the four component programs. States must also meet a "maintenance of effort (MOE) requirement" by spending on needy families at least 75 percent of the amount of state funds used in FY 1994 on these programs (80 percent if they fail work participation rate requirements).
TANF gives states wide latitude in spending both Federal TANF funds and state MOE funds. Subject to a few restrictions, TANF funds may be used in any way that supports one of the four statutory purposes of TANF: to provide assistance to needy families so that children can be cared for at home; to end the dependence of needy parents on government benefits by promoting job preparation, work and marriage; to prevent and reduce the incidence of out-of-wedlock pregnancies; and to encourage the formation and maintenance of two-parent families.
Data Issues Relating to the AFDC-TANF Transition
States had the option of beginning their TANF programs as soon as PRWORA was enacted in August 1996, and a few states began TANF programs as early as September 1996. All states were required to implement TANF by July 1, 1997. Because states implemented TANF at different times, the FY 1997 data reflects a combination of the AFDC and TANF programs. In some states, limited data are available for FY 1997 because states were given a transition period of six months after they implemented TANF before they were required to report data on the characteristics and work activities of TANF participants.
Because of the greatly expanded range of activities allowed under TANF, a substantial portion of TANF funds will be spent on activities other than cash payments to families. For the purpose of tracking expenditure trends, these tables only include those TANF funds spent on "cash and work-based assistance," not on work activities, supportive services, or other allowable uses of funds. However, the administrative costs include funds spent administering these other activities. 1
There also is potential for discontinuity between the AFDC and the TANF caseload figures. One program change is that there is no longer a separate "Unemployed Parent" program under TANF. While a separate work participation rate is calculated for two-parent families, this population is not identical to the UP caseload under AFDC. Moreover, it is possible that a limited number of families will be considered recipients of TANF assistance, even if they do not receive a monthly cash benefit. At present, the vast majority of families receiving "assistance" 2 are, in fact, receiving cash payments; however, this may change over time.
AFDC/TANF Program Data
The following tables and figures present a variety of data about the AFDC and TANF programs. Tables A-1 through A-5 and Figures A-1 through A-3 present national caseload and expenditure trend data on the AFDC/TANF program. These are followed by two tables showing information on characteristics of AFDC/TANF families and a series of tables presenting state-by-state data on trends in the AFDC/TANF program. These data complement the data on trends in AFDC recipiency and participation rates shown in Table IND 9a and Table IND 10a in Chapter II.
Table A-1 presents information on the average monthly number of AFDC families and recipients for each fiscal year since 1970 through 1998. The U.S. caseload peaked at record highs in 1994, with an average 14.2 million recipients in over 5 million families receiving AFDC benefits each month. Since then the caseload has declined about 38 percent — to a monthly average of 8.8 million recipients in 3.2 million families in 1998.
As shown in Figure A-1, AFDC enrollments and benefit outlays generally tended to increase in times of economic recession and decline in times of economic growth. Policy changes, such as the eligibility restrictions of the early 1980s, have also affected caseloads. However, the recent decline has far outstripped that experienced in any previous period. A number of studies have attempted to explain the recent decline, and to determine the relative effect of economic factors versus policy changes in explaining the caseload by looking at the variation in caseload decline among states.
A recent report by the Council of Economic Advisors, The Effects of Welfare Policy and the Economic Expansion on Welfare Caseloads: An Update, August 3, 1999, finds that during the pre-TANF period (1993-1996), the strong economy was the largest factor explaining the welfare decline, and that changing policies under waivers and lower welfare benefits in real dollars also had a substantial impact. During the post-TANF period (1996-1998), the CEA finds that policy changes accounted for about a third of the decline in welfare receipt, and that both the strong economy and the increase in the minimum wage accounted for about 10 percent of the decline each. In both periods, a large portion of the welfare decline is not explained by the examined variables. Possible factors that could account for this additional decline include the expansions of the Earned Income Tax Credit (EITC) and changing cultural perceptions of welfare receipt.
A common misperception of welfare families is that they have unusually large numbers of children. Table A-1 and Figure A-2 show that the average number of children per welfare family dropped steadily from the late 1960s through the early 1980s, and has remained steady at around 2 children per household since. While female-headed households receiving welfare have a higher average number of children than non-poor female-headed households, they have a lower average than all poor female-headed households. Children as percentage of all AFDC/TANF recipients have increased somewhat in the past few years, because child-only cases have not declined as fast as other cases in the welfare population.
Table A-2 and Figure A-3 show that inflation has had a significant effect in eroding the value of the average monthly AFDC/TANF benefit. In real dollars, the average monthly benefit per recipient in 1998 was only 65 percent of what it was at its peak in the late 1970s.
Tables A-3 and A-4 show trends in expenditures on AFDC and TANF. Table A-3 breaks out the costs of benefits and administrative expenses, and shows the division between federal and state spending. Table A-4 breaks out the benefits paid under the single parent or "basic" program and the Unemployed Parent (UP) program, and also nets out the value of child support collected on behalf of recipient children, but retained by the state to reimburse welfare expenditures. This table presents data through 1996 only, because the TANF data reporting requirements do not require that caseload data be separated into "basic" and "UP" components.
Table A-5 places the AFDC/TANF caseload trends in context, by showing the number of recipients as a percentage of various populations. In 1998, TANF recipients were a smaller percentage of the total population than at any time since 1967.
Figure A-4 and Table A-6 show a number of demographic characteristics of AFDC/TANF families. One of the most striking trends is the recent jump in the fraction of families with earnings. In FY 1998, 20.6 percent of TANF families had earned income, up from 11.1 percent in FY 1996 and 7.4 percent in FY 1992.
Tables A-7 through A-13 present state-by-state trend data on the AFDC/TANF expenditures and caseloads. These reveal a great deal of state-to-state variation in the trends discussed above. For example, as shown in Table A-9, while every state has experienced a caseload decline since 1993, the percentage change from 1993-1998 ranges from 84 percent (Wyoming) to 12 percent (Rhode Island). Table A-10 shows that states reached their peak caseloads as early as May 1990 (Louisiana) and as late as May 1995 (Maryland).