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Tax Credits and Maintenance-of-Effort

by Chuck Sheketoff

Executive Summary

Federal welfare reform requires Oregon to spend 75 percent of its federal fiscal year 1994 expenditures on welfare programs in order to receive the TANF (Temporary Assistance to Needy Families) block grant. This "maintenance-of-effort" requirement was placed in federal law to ensure states maintained their commitment to families with dependent children.

The Governor's recent decision to move over $40 million in general funds away from Adult and Family Services (AFS), put Oregon's compliance with maintenance-of-effort in jeopardy. The agency is considering ways to use expenditures which is has not used in the past to meet the federal requirement.

New TANF rules were adopted to allow states to count the refundable portion of tax credits which help working, low-income families toward the maintenance of effort requirements. Oregon has two credits which could be changed to meet MOE criteria, the Earned Income Credit (EIC) and the Working Family Credit (WFC). As currently designed, neither credit may exceed a taxpayer's state income tax liability. If these credits were made refundable, that is, if taxpayers could receive refunds in excess of tax liability, that excess portion could be applied to Oregon's maintenance-of-effort requirement.

This study examines the current MOE situation and suggests making both credits refundable as one way to meet federal maintenance-of-effort requirements without risking penalties. The OCPP is distributing this analysis to the public, the press, and legislators to help develop an informed opinion on this issue.

Please do not hesitate to contact the author if you have any questions or need additional information.