Still a Safety Net? TANF Cash Assistance Coverage & State Fiscal Health

Background and Purpose

It has been over twenty years since welfare reform created Temporary Assistance for Needy Families (TANF). A stated goal of reform was to move low-income families off the cash assistance rolls and their adult members into the labor market. By these criteria, the initial years of TANF were a success—cash assistance caseloads plummeted while single-mother employment rose. With two decades of data and experience, including the largest economic downturn since the Great Depression, it is possible to consider TANF’s strengths and challenges from other perspectives.

TANF’s policy design includes formal and informal incentives encouraging states to keep cash assistance caseloads low. These same incentives, though, may limit countercyclical responsiveness. In particular, TANF funds do not have to be used for cash assistance or services for cash assistance recipients. This flexibility may allow states to draw on TANF to cover other priorities during times of declining tax revenue due to adverse economic conditions—periods when a cash safety net would prove most useful. In this study, I consider the relationship between state fiscal health and TANF as a component of the social safety net.

Methods

I estimate a set of fixed effects models of state TANF cash assistance coverage, measured as the ratio of cash assistance cases to the number of families in poverty in the state, with a sample of all states from 1998 to 2013 (n=800; 50 states in 16 years). The key predictor variable is a measure of state fiscal conditions, the ratio of budget surplus or shortfall to expenditures calculated so larger values indicate greater fiscal stress. State fixed effects control for unobserved within-state characteristics while year indicators control for common shocks. I also control for other relevant time-varying state characteristics, such as government political ideology and unemployment rate. Finally, I split the sample into two time periods, the years preceding the “Great Recession” and the years during and following the recession.  

Results

State fiscal stress is related to cash assistance coverage, with periods of greater fiscal distress associated with reduced cash assistance coverage even after controlling for other economic factors. The result is only statistically significant during the period beginning with the economic downturn of the late 2000s, however. These results are consistent with the proposition that TANF’s fiscal flexibility provides states with a set of incentives that weaken the program’s ability to act as an economic backstop for vulnerable families. 

Conclusions & Implications

While there are many reasons adequate and stable employment is preferable to receipt of public benefits, downturns are an inevitable feature of the economic cycle. Replacing AFDC with TANF may have had beneficial effects on employment, but at the cost of providing a true safety net. As currently structured, TANF leads states to restrict coverage at precisely the time structural conditions make employment less accessible. Findings are relevant not only for TANF but for proposed reforms to other program such as the Supplemental Nutrition Assistance Program.