Congress Should Extend the TANF ECF to Bolster the Economy and Struggling Families

In recessionary times, spurring economic activity and helping the most vulnerable families should be top priorities. By those measures, Congress did well in establishing the Temporary Assistance for Needy Families Emergency Contingency Fund (TANF ECF) as part of last year’s federal Recovery Act, the American Recovery and Reinvestment Act of 2009, which aimed at jumpstarting the nation’s economy. The TANF ECF has pumped tens of millions of dollars into Oregon’s economy, funds that have enabled the state to provide basic assistance, supportive services and employment assistance to thousands of Oregon’s most desperate families with children while spurring economic activity.

But unless Congress moves to extend it, the extra federal funding will end prematurely later this year. The ECF is scheduled to expire on September 30, 2010, even though need for the TANF program will stay at elevated levels because of persistently high unemployment. Struggling families, as well as both Oregon’s and the nation’s economy, would be well served by an extension of the TANF EFC.

The TANF ECF has injected new federal funds into Oregon’s economy

TANF is an important part of the nation’s safety net and a key program for getting the most vulnerable unemployed parents into the workforce. TANF has two main functions. First, TANF provides a small amount of cash assistance to very poor, mostly single-parent, families with dependent children. To be eligible for cash or services, a three-person family in Oregon, for example, can have no more than $616 per month in income, which is 40 percent of the federal poverty level. Second, under stringent work participation rules and a time limit on TANF cash assistance, TANF provides services such as job training and childcare assistance that help individuals obtain work and remain employed.

Unfortunately, TANF is not well structured to respond to increased demand in a recession, when economic hardship rises. This inflexible characteristic of TANF was built into the program at the time of welfare reform of the mid-1990s, when TANF was created. Prior to the 1996 welfare reform, the federal government shared with states the costs of larger welfare caseloads when a downturn hit; states received federal matching funds when they stepped up to address the increased need brought on by a recession. With welfare reform, Congress shifted welfare funding to a fixed amount to states each year, known as a block grant. Now, when a recession hits and demand increases, each state has to pick up the entire cost of any increase in the number of families it helps — an often difficult task for cash-strapped states.

The federal Recovery Act of 2009 helped address TANF’s limited ability to respond in a recession. It provided $5 billion in an Emergency Contingency Fund that states could draw on to meet rising demand for services. The funding works like a rebate, whereby a state gets back from the fund 80 percent of the money it adds to its TANF program for certain forms of assistance. States are still compelled to focus their TANF programs on employment, and the work participation rules and time limit established in the 1996 welfare reform act apply to the use of the Recovery Act dollars.

By drawing on the federal TANF ECF, Oregon brings significant new money into the state’s economy. Oregon is eligible for up to $83 million from the ECF. It has received $78.8 million to date and expects to draw down the full amount for which it is eligible before the fund expires in September 2010. If the program is extended, Oregon’s legislature could choose to continue drawing down the additional federal funds associated with the extension to meet the continued high demand for TANF cash assistance and job preparedness and training services.

The TANF ECF shares the traits of effective stimulus programs

Government stimulus programs that target aid to low-income people tend to be highly effective. Such programs put money in the hands of people who will spend it quickly and locally to meet their basic needs, creating demand for goods and services. The money they spend at their local grocery store, gas station or other establishment enables those businesses to retain their existing employees or hire more workers. Those workers in turn are able to maintain their spending in the community.

While economists have not calculated the multiplier effect of the TANF ECF, their analysis confirms the effectiveness of similar programs that put money in the pocketbooks of low-income households. One example is the Supplemental Nutrition Assistance Program (SNAP, formerly known as the food stamp program), which provides cash equivalents that assist some of the neediest families. By one estimate, every dollar spent on increased food stamp benefits produces $1.74 in total, national economic activity. In other words, it offers a good “bang for the buck.”

TANF shares the traits of effective stimulus programs. TANF offers very poor families with children a small cash assistance payment each month. For example, the maximum cash grant for a single mother with two children in Oregon is $485, which is 32 percent of the federal poverty level. Because the modest TANF payments can support only the most basic needs, families are highly likely to spend their TANF assistance quickly and locally, just as families who receive food stamp benefits do, boosting consumer demand.

TANF ECF dollars assist thousands of struggling Oregon families

The 2009-11 budget shortfall caused by the severe recession threatened funding for programs serving some of the must vulnerable families in the state. Funding in the Recovery Act allowed Oregon legislators to avoid some cuts to the state’s TANF program that would have harmed struggling families with children and undercut the impact of an important stimulus tool. Specifically, because of TANF ECF funding:

• More than 2,900 low-income working families continued to receive help with childcare costs each month through the Employment Related Day Care (ERDC) program. The legislature had proposed restricting ERDC to families actually receiving TANF cash assistance, cutting off working families with minimal incomes who rely on ERDC so that they can remain in the workforce and off the TANF cash assistance program. The cut would have affected not only these low-income families but also the livelihoods of the providers who care for their children. TANF ECF dollars helped protect employment for those 2,900 families as well as private-sector childcare jobs.

• Oregon preserved cash assistance for two-parent families with dependent children in which both adults are unemployed or severely underemployed, called the TANF UN program. The program had been slated for elimination. Because of TANF ECF, the program was maintained, serving more than 3,000 families per month on average, from March 2009 to March 2010.

• The Family Support and Connections program, which aims to prevent child abuse and neglect while helping children remain with their families and outside the child welfare system, was preserved. Largely because of ECF funds, the program was not eliminated and was able to serve approximately 345 new families each month.

• Oregon kept intact a monthly cash assistance payment to TANF families who were in the process of applying for disability payments through the Supplemental Security Income or Supplemental Security Disability Income programs. The additional federal funds from the TANF ECF has provided vital temporary support each month to about 750 families who are substantially limited by a disability and unable to meet the work requirements in TANF.

• Cuts to the TANF Job Opportunity and Basic Skills (JOBS) employment and training program and TANF cash benefit assistance were less than originally proposed, resulting in 2,980 families per month continuing to receive cash benefits and JOBS program services.

Oregon and struggling families would gain from an extension of the TANF ECF

Though the Recovery Act appears to have succeeded in substantially promoting economic growth, most economists predict a slow recovery. As an indication of the hardship families face in coming months, the state projects that Oregon’s TANF caseloads will continue to increase through the end of 2010 and then slowly decline as the job market improves.

Thus, Oregon’s economy and many of its struggling families would benefit from an extension and expansion of the TANF ECF. Congress is currently considering a bill, H.R. 4213, that would extend a number of important Recovery Act provisions slated to expire soon. That bill should include a provision that both adds funds to the ECF and extends for one year the time allowed for states to access the funding.

It’s important for Congress to move quickly to protect the TANF ECF. Oregon’s TANF program is struggling to meet elevated demand, and Oregon is facing a significant budget shortfall for the upcoming biennium. Additional TANF ECF funds could help protect the important services and economic benefits they engender described above.

Conclusion

The TANF ECF embodies the right priorities for Oregon and the nation: bolstering the economy and assisting the most vulnerable families. Congress should move quickly to extend and expand this fund that has proved vital to Oregon and its vulnerable families.