As I noted in a recent post on Congress’ failure to fund TANF Supplemental Grants for 17 mostly poor states, one way to help offset the loss of that funding would be to redesign the TANF Contingency Fund. When Congress created the TANF block grant in 1996, it created the TANF Contingency Fund for states to draw upon during periods of economic distress. The goal was to address some of the risks and hardships that states would face as a result of the conversion of Aid to Families with Dependent Children (AFDC) — an entitlement program whose funding rose automatically in recessions — into a block grant with fixed federal funding. However, the fund is not well-designed to achieve its stated purpose.
Congress provided $612 million for the Contingency Fund for fiscal year 2012, which begins October 1, but only a minority of states — and not necessarily those with the greatest need — will qualify. Last year, just 20 states and the District of Columbia qualified. Several of the states that did not qualify — California, Florida, Georgia, Illinois, and Rhode Island, among others — have faced unemployment rates well above the national average.
Since the TANF bill that Congress passed last week extended the program for only three months, lawmakers will have an opportunity later this fall to revisit the Contingency Fund. We have proposed a redesign to correct the fund’s design flaws so that more states — and especially those with the greatest need — can qualify for it. An improved Contingency Fund would have the following features:
- A simpler, updated economic hardship “trigger” to qualify a state for funds. Any state with an unemployment rate at or above 6.5 percent would qualify for money from the fund. The fund’s current triggers are out of date and unnecessarily complicated.
- Receipt of funds for a longer period. States that hit the trigger should receive funds in that calendar quarter and the next three quarters, which would allow them to maximize their use of the additional funds without worrying about whether they will lose their eligibility in the next month or two. States currently qualify for funds on a month-to-month basis.
- More narrowly targeted funding. Congress should limit the use of the Contingency Fund to subsidized employment and basic cash assistance, two categories of spending that are directly related to helping families meet their basic needs in hard economic times. Currently, states can use the Contingency Fund to meet any goal of the TANF program, many of which have no direct relationship to the hardships families are facing because of the economic downturn.
- Requirement that a state increase its help to needy families. The amount of extra help for which a state can qualify should be based on the amount by which it has increased its spending above a base year in the targeted categories. This approach ensures that a state receives additional funds only for increased spending and can’t simply use the funds to replace existing spending.
- Elimination of overly restrictive state spending requirements . The Contingency Fund’s maintenance-of-effort (MOE) provisions are complex and can hinder otherwise-eligible states from accessing the fund. If Congress adds the requirement above that a state increase its spending to qualify for Contingency Funds, the complex and restrictive MOE requirement is no longer needed.
During this recession, many states have been unable to respond to increased need because they have no extra funds to draw upon. The Contingency Fund is too small to help states respond fully, but the changes outlined above will make more effective use of available resources.