Report on Alternative Outcome Measures: Temporary Assistance for Needy Families (TANF) Block Grant . Penalties and Bonuses under TANF

If state variation in JOBS program objectives (considering the relatively prescriptive federal mandates) contributed to difficulty in recommending a system of outcome-based performance measures under JOBS, then passage of PRWORA added to the problem's complexity. PRWORA eliminated the cash welfare (AFDC) and job training (JOBS) programs and replaced them with a block grant called Temporary Assistance for Needy Families (TANF). Its purpose was to increase state flexibility in providing assistance to needy families within the framework of four broad Congressionally mandated goals. These goals are to:

  • provide assistance to needy families so that children may be cared for in their own homes or in the homes of relatives;
  • end the dependence of needy parents on government benefits by promoting job preparation, work, and marriage;
  • prevent and reduce the incidence of out-of-wedlock pregnancies and establish annual numerical goals for preventing and reducing the incidence of these pregnancies; and
  • encourage the formation and maintenance of two-parent families.

States have total flexibility in setting priorities among these goals as they choose how to spend their TANF block grant. There is no requirement that states spend equal amounts on each of these goals, or even that they spend any funds on a given goal. To date, the majority of TANF funds have been spent on cash and work-based assistance, which was the primary use of funds allowed under AFDC. Most of the remaining funds have been spent on work activities, child care, and other work-based supports. States also have full control over such aspects of the program as benefit levels, eligibility, and the design and sequencing of work activities. In order to protect state flexibility, Congress prohibited HHS from regulating state behavior unless specifically required under the law.

In counterpoint to this broad state flexibility, in designing TANF, Congress was quite prescriptive in some specific areas - such as time limits, sanctions, and requirements imposed on teen parents. These mandates are backed up by financial penalties, under which states may lose a portion of their block grant allocation for such violations as failure to participate in the income and eligibility verification system, failure to maintain a certain level of historic funding effort, or failure to comply with the five-year time limit on assistance. These penalties are all attached to process measures, and are designed to ensure compliance with Congressional priorities.

The penalty which has attracted the most attention so far is for failure to meet the work participation rate requirement, under which states must engage a target percentage of all recipients (with very limited exceptions) in work and work-related activities. As described in detail in Appendix C, the list of activities which may be counted under this requirement is more restrictive than the countable activities under JOBS. This participation rate requirement is becoming more challenging over time, as both the hours of participation required in order to be counted and the target participation rate rise each year. In the first three years of the TANF program, all states have achieved the required all-families participation rate, but 19 states failed to achieve the higher target for two-parent families in FY 1997, 14 failed to do so in FY 1998 and 8 failed to do so in FY 1999. (See Table 2 and Table 3 in Appendix C.)

While TANF does not include any penalties based on outcome-based performance measures, it is worth noting that the participation rate does have some aspects of an outcome measure, in that most of the people whom the states can count toward the rate are working in unsubsidized employment, which is key to one of the most fundamental goals of TANF - requiring families to make efforts to work. Moreover, states receive credit toward the participation rate for the degree to which their caseloads have declined since 1995, to the extent that these changes were not caused by changes in eligibility. Thus, the participation rate also rewards states that have moved families off welfare.

The bonuses under TANF are more outcome-oriented. Under one bonus, the Bonus for Reductions in Out-of-Wedlock Births, Congress provided up to $100,000,000 per year in bonuses for up to five states that demonstrate the greatest decreases in out-of-wedlock births, so long as those states also have a reduction in the abortion rate from FY 1995. Under a second bonus, the High Performance Bonus, Congress appropriated an average of $200,000,000 per year for five years to reward the highest performing states in achieving the goals of TANF. Congress did not specify the measures to be used, but required HHS to develop a formula for scoring states' performance, in consultation with the National Governors' Association and the American Public Human Services Association (formerly the American Public Welfare Association). For bonuses awarded in FYs 1999-2001, the measures used are primarily related to the first two goals of TANF: job entry and success in the workforce, measured by a weighted combination of earnings gains and job retention. Awards are provided both for absolute performance and for improvement compared to the previous year. States choose whether to compete for any or all of these work measures.

Under the Final Rule, published in the Federal Register on August 30, 2000 (65 FR 52814), for High Performance Bonuses awarded in FYs 2002 and 2003, states will also have the opportunity to compete under a measure of family formation and stability and five measures of states' success in supporting work and self-sufficiency by providing eligible families with health insurance (through Medicaid and SCHIP), food stamps, and child care subsidies (HHS, 2000(a)).

There is some overlap between the mandate for this report and the requirement to reward with a High Performance Bonus states identified as high performers, based on formulas that measure states' performance in operating their TANF programs. This report takes into account the input received through the High Performance Bonus consultation process, as well as lessons learned in developing the High Performance Bonus interim guidance and proposed and final rules. We also include the High Performance Bonus measures among those discussed in detail in Chapter III, as these measures could well serve as the building blocks for a system of outcome-based performance measurement.

However, the two requirements differ in some important respects. First, the High Performance Bonus measures needed to be selected and implemented in a narrow time frame, with limited possibility of developing new data sources or using past performance to establish benchmarks. More importantly, in considering outcome-based performance measures as an alternative to the work participation requirements, this report examines the use of such measures for penalties as well as for bonuses, and explores the issues which would need to be addressed if outcome-based performance measures were to be used as the primary mechanism for holding states accountable for their use of federal TANF funds.