Indicators of Welfare Dependence: Annual Report to Congress, 2002. Aid to Families with Dependent Children (AFDC) and Temporary Assistance for Needy Families (TANF)

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) replaced AFDC, the Job Opportunities and Basic Skills Training (JOBS) program and the Emergency Assistance (EA) program with a cash welfare block grant called the Temporary Assistance for Needy Families (TANF) program. 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 $16.5 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. When tracking overall expenditure trends, the tables in this Appendix (e.g., Table TANF 3) include only those TANF funds spent on “cash and work-based assistance” and “administrative costs,” not on work activities, supportive services, or other allowable uses of funds. Spending on these other activities is detailed in Table TANF 5. Note that TANF administrative costs include funds spent administering all activities, not just cash and work-based assistance. (Administrative costs under AFDC had included a small amount of funds for administering AFDC child care programs; such programs, and the costs of administering them, have now been transferred to the Child Care and Development Fund as part of PRWORA).

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. Another change under TANF is that some states provide cash and other forms of assistance to specific categories of families (e.g., two-parent families) under Separate State Programs; the TANF caseload figures do not include these families. Finally, 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”¹ are, in fact, receiving cash payments; however, this may change over time.

AFDC/TANF Program Data

The following tables and figures present data on caseloads, expenditures, and recipient characteristics of the AFDC and TANF programs. Trends in national caseloads and expenditures are shown in Figure TANF 1 and the first set of tables (Tables TANF 1-6). These are followed by information on characteristics of AFDC/TANF families (Table TANF 7) and a series of tables presenting state-by-state data on trends in the AFDC/TANF program (Tables TANF 8-13). These data complement the data on trends in AFDC recipiency and participation rates shown in Tables IND 4a and IND 5a in Chapter II.

AFDC/TANF Caseload Trends (Figure TANF 1, Tables TANF 1-2). Welfare caseloads have declined dramatically during the past several years. In fiscal year 2000, the average monthly number of TANF recipients was 6.0 million persons, 53 percent lower than the average monthly AFDC caseload in fiscal year 1996 and the smallest number of people on welfare since 1968. From the peak of 14.4 million in March 1994, the number of AFDC/TANF recipients dropped by 63 percent to 5.3 million in September 2001. Over three-fourths of the reduction in the caseload since March 1994 has occurred following the implementation of TANF. These are the largest welfare caseload declines in the history of U.S. welfare programs.

As shown in Figure TANF 1, AFDC caseloads generally tended to increase in times of economic recession and decline in times of economic growth. The recent decline, however, has far outstripped that experienced in any previous period.

Several studies have attempted to explain the unprecedented decline in caseloads, and specifically, to disentangle the effects of PRWORA and welfare reform from the simultaneous growth in the U.S. economy. Separating these effects is difficult, because PRWORA was enacted at a time when the economy was expanding dramatically, offering a uniquely conducive environment within which to move many welfare recipients off the rolls and into the labor market. Other policy changes, most notably expansions in the Earned Income Tax credit, add further complexity.

In general, studies have found that both economic conditions and welfare reform policies have played important roles in the recent caseload decline. A review of a dozen studies concluded that roughly 15 to 30 percent of the caseload decline prior to 1996 was attributed by most studies to welfare policies under waivers to the AFDC rules with approximately 30 to 45 percent of the decline explained by economic conditions (Schoeni and Blank, 2000). A study by the Council of Economic Advisors (1999) of the post-PRWORA period finds that just over one-third of caseload decline can be explained by welfare reform policy, while 8 to 10 percent is due to the economy. In addition to general labor market conditions, the effects of economic policy post-1996 (namely increases in the minimum wage) explain another 10 to 16 percent of the caseload drop. 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.

AFDC/TANF Expenditures (Tables TANF 3-6 and Figure TANF 2). Tables TANF 3, 4 and 5 show trends in expenditures on AFDC and TANF. Table TANF 3 tracks both programs, breaking out the costs of benefits and administrative expenses. It also shows the division between federal and state spending. Table TANF 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 TANF 5 shows the variety of activities funded under the TANF program.

Figure TANF 2 and Table TANF 6 shows 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 2000 was 75 percent of what it was at its peak in the late 1970s. This level was $14 higher than in 1998, but still below the real value of benefits in the 1970s, 1980s and early 1990s.

AFDC/TANF Recipient Characteristics (Table TANF 7). With the dramatic declines in the welfare rolls since the implementation of TANF, there has been a great deal of speculation regarding how the composition of the caseload has changed. Two striking trends are the increases in the proportion of child-only cases and in employment among adult recipients.

One of the most dramatic trends is the recent jump in the proportion of adult recipients who are working. In FY 2000, 26 percent of TANF adult recipients were employed, up from 11 percent in FY 1996 and 7 percent in FY 1992, as shown in Table TANF 7. Adding in those in work experience and community service positions, the percentage working was at an all-time high of 33 percent in FY 2000 (data not shown). Similar upward trends are shown in data on income from earnings. These trends likely reflect positive effects of welfare-to-work programs, the strong economy, and the fact that, with larger earnings disregards, families with earnings do not exit welfare as rapidly. In addition, the increased employment of welfare recipients is consistent with broader trends in labor force participation among mothers with young children. Among single mothers with children under six and family income below 200 percent of the Federal poverty level, for example, the employment rate increased from 35 percent in 1992 to 59 percent in 2000. In addition, employment rates for white, black, and Hispanic women ages 18 to 65 with no more than a high school education were at all-time highs in 1999, with some leveling off among white and black women in 2000 (as shown in WORK 2 in Chapter III).

Another dramatic change in the caseload is the increasing fraction of child-only cases. Child only cases have climbed from 11.6 percent of the caseload in FY 1990 to 34.5 percent in FY 2000. This dramatic growth has been due to both the overall decline in the number of adult-present cases as well as an increase in the number of child-only cases. Child-only cases are generally not subject to the work requirements or time limits under TANF.

In other areas, the administrative data show fewer changes in composition than might have been expected. There has been widespread anecdotal evidence that the most job ready recipients — those with the fewest barriers to employment — have already exited the welfare caseload and have stopped coming onto the welfare rolls, leaving a more disadvantaged population remaining. However, as the expectations for welfare recipients have increased, and fewer recipients are totally exempted from work requirements, others have speculated that the most disadvantaged recipients may also have been sanctioned off the rolls or terminated for failure to comply with administrative requirements. In fact, analyses of program data have not found much evidence of an increase or decline in readily observed barriers to employment in the current caseload.

The question of whether the caseload has become more disadvantaged cannot be answered simply through administrative data provided by the states, which do not contain detailed information on such barriers to employment as lack of basic skills, alcohol and drug abuse, domestic violence, and disabilities. A few recent studies have found very high levels of these barriers among the TANF population. These studies have also found that the effects of these barriers are interactive; while any one barrier to employment can often be overcome, the more barriers a recipient faces, the less likely she is to find a job and maintain consistent employment over a period of time.

AFDC/TANF State-by-State Trends (Tables TANF 8-14). There is a great deal of state-to-state variation in the trends discussed above. For example, as shown in Table TANF 10, while every state has experienced a caseload decline since 1993, the percentage change between the state’s caseload peak and June 2001 ranges from 93 percent (Wyoming) to 35 percent (Rhode Island). Seven states have experienced caseload declines of 75 percent or more. Table TANF 10 also shows that states reached their peak caseloads as early as May 1990 (Louisiana) and as late as May 1995 (Maryland).

Figure TANF 1. AFDC/TANF Families Receiving Income Assistance

Note: “Basic families” are single-parent families and “UP families” are two-parent cases receiving benefits under AFDC Unemployed Parent programs that operated in certain states before FY 1991 and in all states after October 1, 1990. The AFDC Basic and UP programs were replaced by TANF as of July 1, 1997 under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996. Shaded areas indicate NBER designated periods of recession from peak to trough. The decrease in number of families receiving assistance during the 1981-82 recession stems from changes in eligibility requirements and other policy changes mandated by OBRA 1981. Last data point plotted is June 2001.

Source: U.S. Department of Health and Human Services, Administration for Children and Families, Office of Planning, Research, and Evaluation.

Figure TANF 2. Average Monthly AFDC/TANF Benefit per Recipient in Constant Dollars

Note: See Table TANF 6 for underlying data.

Source: U.S. Department of Health and Human Services, Administration for Children and Families, Office of Family Assistance, Quarterly Public Assistance Statistics, 1992 & 1993, and unpublished data.

Table TANF 1. Trends in AFDC/TANF Caseloads, 1962 – 2000

Footnotes:

¹Includes unemployed parent families and child-only cases.

²The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 repealed the AFDC program as of July 1, 1997 and replaced it with the Temporary Assistance to Needy Families (TANF) program.

³Based on data from the old AFDC reporting system which was available only for the first 9 months of the fiscal year.

⁴Estimated based on the ratio of Unemployed Parent recipients to Unemployed Parent families in 1997.

Source: U.S. Department of Health and Human Services, Administration for Children and Families, Office of Planning, Research and Evaluation, (Available online at http://www.acf.dhhs.gov/).

Table TANF 2. Number of AFDC/TANF Recipients, and Recipients as a Percentage of Various Population Groups, 1970 – 2000

Footnotes:

¹Total recipients are calculated here as the monthly average for the calendar year in order to compare with the calendar year counts of the poverty populations used to compute the recipiency rates. See Table IND 3a for fiscal year recipiency rates.

²Population numbers used as denominators are resident population. See Current Population Reports, Series P25-1106.

³For poverty population data see Current Population Reports, Series P60-210 and Resident Population Estimates of the United States by Age and Sex, April 1, 1990 to July 1, 2000, Internet release date January 2, 2001.

⁴The pretransfer poverty population used as denominator is the number of all persons in families with related children under 18 years of age whose income (cash income plus social insurance plus Social Security but before taxes and means-tested transfers) falls below the appropriate poverty threshold. See Appendix J, Table 20,1992 Green Book; data for subsequent years are unpublished Congressional Budget Office tabulations.

⁵Average for January through June of 1997.

Source: U.S. Department of Health and Human Services, Administration for Children and Families, Office of Family Assistance and U.S. Bureau of the Census, Poverty in the United States: 2000, Current Population Reports, Series P60-214 and earlier years, (Available online at http://www.census.gov/hhes/www/poverty.html).

Table TANF 3. Total AFDC/TANF Expenditures on Cash Benefits and Administration, 1970 – 2000 [In millions of dollars]

Note: Benefits do not include emergency assistance payments and have not been reduced by child support collections. Foster care payments are included from 1971 to 1980. Beginning in fiscal year 1984, the cost of certifying AFDC households for food stamps is shown in the food stamp program’s appropriation under the U.S. Department of Agriculture. Administrative costs include: Work Program, ADP, FAMIS, Fraud Control, Child Care administration (through 1996), SAVE and other State and local administrative expenditures.

Footnotes:

¹Constant dollar adjustments to 2000 level were made using a CPI-U-X1 fiscal year price index.

²Includes expenditures for services.

³Administrative expenditures only.

⁴The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 repealed the AFDC program as of July 1, 1997 and replaced it with the Temporary Assistance to Needy Families (TANF) program. Under PRWORA, spending categories are not entirely equivalent to those under AFDC: for example administrative expenses under TANF do not include IV-A child care administration (which accounted for 4 percent of 1996 administrative expense).

Source: U.S. Department of Health and Human Services, Administration for Children and Families, Office of Financial Systems.

Table TANF 4. Federal and State AFDC Benefit Payments Under the Single Parent and Unemployed Parent Programs, Fiscal Years 1970 to 1996 [In millions of current and 1996 dollars]

Footnotes:

¹Includes payments to two-parent families where one adult is incapacitated.

²Total AFDC collections (including collections on behalf of foster care children) less payments to AFDC families.

³Net AFDC benefits Gross benefits less those reimbursed by child support collections.

⁴Constant dollar adjustments to 1996 level were made using a CPI-U-XI fiscal year price index.

Note:Data are not available after 1996 because the TANF data reporting requirements do not require that caseload data be separated into single parent and unemployed parent components.

Source:U.S. Department of Health and Human Services, Administration for Children and Families, Office of Financial Management.

Table TANF 5. Federal and State TANF Program and Other Related Spending, Fiscal Years: 1997 to 2000 (Millions)

Source: U.S. Department of Health and Human Services, Administration for Children and Families, Office of Financial Services.

Table TANF 6. Trends in AFDC/TANF Average Monthly Payments, 1962 – 2000

Footnotes:

¹The maximum benefit for a 3-person family in each state is weighted by that states share of total AFDC families.

²Estimated based on the weighted average benefit for a 4-person family.

³The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 repealed the AFDC program as of July 1, 1997 and replaced it with the Temporary Assistance to Needy Families (TANF) program.

Note: AFDC benefit amounts have not been reduced by child support collections. Constant dollar adjustments to 2000 level were made using a CPI-U-X1 fiscal year price index.

Source: U.S. Department of Health and Human Services, Administration for Children and Families, Office of Family Assistance, Quarterly Public Assistance Statistics, 1992, 1993 and earlier years along with unpublished data.

Table TANF 7. Characteristics of AFDC/TANF Families, Selected Years 1969 – 2000

Note: Figures are percentages of families/cases unless noted otherwise.

¹Percentages are based on the average monthly caseload during the year. Hawaii and the territories are not included in 1983. Data after 1986 include the territories and Hawaii.

²Calculated on the basis of total number of families.

³For years prior to 1983, data are for mothers only.

⁴Presence of income is measured as a percentage of adult recipients, not families, in 1998 and subsequent years.

Source: U.S. Department of Health and Human Services, Administration for Children and Families, Office of Family Assistance, Characteristics and Financial Circumstances of TANF Recipients: 2001 TANF Annual Report to Congress and earlier years.

Table TANF 8. AFDC/TANF Benefits by State, Selected Fiscal Years 1978 – 2000 [Millions of dollars]

Note: Benefits refers to total cash benefits paid (see Table TANF 3) but does not include emergency assistance payments. UA denotes data unavailable.

Source: U.S. Department of Health and Human Services, Administration for Children and Families, Office of Program Support, Office of Management Services, data from the ACF-196 TANF Report and ACF-231 AFDC Line by Line Report.

Table TANF 9. Comparison of Federal Funding for AFDC and Related Programs and 2000 Family Assistance Grants Awarded Under PRWORA [In millions]

Footnotes:

¹Includes Administration and FAMIS but excludes IV-A child care. AFDC benefits include the Federal share of child support collections to be comparable to the Family Assistance Grant. The 1996 figures have been revised since earlier versions of this report, to reflect upward revisions in states' reports of expenditures on the JOBS program.

²The FY 2000 awards include State Family Assistance Grants, Supplemental Grants for Population Increases, Out of Wedlock Bonus and High Performance Bonus. Totals for AZ, CA, OK, OR, SD WI, and WY include funds for Tribes operating TANF within the State.

Source: U.S. Department of Health & Human Services, Administration for Children and Families, Office of Financial Services.

Table TANF 10. AFDC/TANF Caseload by State, October 1989 to June 2001 Peak [In thousands]

Note:

¹Negative values denote percent increase.

Source: U.S. Department of Health and Human Services, Administration for Children and Families, Office of Planning, Research and Evaluation, Division of Data Collection and Analysis.

Table TANF 11. Average Monthly AFDC/TANF Recipients by State, Selected Fiscal Years 1965 –2000 [In thousands]

Source: U.S. Department of Health and Human Services, Administration for Children and Families, Office of Planning, Research and Evaluation, 2001 TANF Report to Congress.

Table TANF 12. AFDC/TANF Recipiency Rates for Total Population by State Selected Fiscal Years 1965 – 2000 [In percent]

Note: Recipiency rate refers to the average monthly number of AFDC recipients in each State during the given fiscal year expressed as a percent of the total resident population as of July 1 of that year. The numerators are from Table TANF 11.

Sources: U. S. Department of Health and Human Services and U.S. Bureau of the Census, (Resident population by state available on line at http://www.census.gov/population/estimates/state/).

Table TANF 13. Average Number of AFDC/TANF Child Recipients By State, Selected Fiscal Years 1965 – 2000 [In thousands]

Source: U.S. Department of Health and Human Services, Administration for Children and Families, Office of Planning, Research and Evaluation, 2001 TANF Report to Congress.

Table TANF 14. AFDC/TANF Recipiency Rates for Children by State, Selected Fiscal Years 1965 – 2000 [In percent]

Note: Recipiency rate refers to the average monthly number of AFDC child recipients in each State during the given fiscal year as a percent of the resident population under 18 years of age as of July 1 of that year. The numerators are from Table TANF 13.

Sources: U. S. Department of Health and Human Services and U.S. Bureau of the Census, (Resident population by state available on line at http://www.census.gov/population/estimates/state/).

¹States are allowed to use TANF funds on a variety of services, including employment and training services, domestic violence services, and child care, transportation, and other support services. Families receiving such services, however, should generally not be counted as recipients of TANF “assistance”. Under the final regulations for TANF, “assistance” includes primarily payments directed at ongoing basic needs. It includes payments when individuals are participating in community service and work experience (or other work activities) as a condition of receiving payments (e.g., workfare). In addition to cash assistance, the definition also includes certain child care and transportation benefits (provided the families are not employed). It excludes, however, such things as: non-recurrent, short-term benefits; services without a cash value, such as education and training, case management, job search, and counseling; and benefits such as child care and transportation when provided to employed families.

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