Poorer States Lose Out Again in Latest TANF Extension

February 23, 2012 at 2:34 pm

The bill that Congress passed last week to extend the payroll tax cut and federal emergency unemployment insurance also extended the Temporary Assistance for Needy Families (TANF) block grant through September 2012. But, in a continued unraveling of the deal that Congress made with the states in the 1996 welfare reform law, Congress provided no funding for the TANF Supplemental Grants, which 17 mostly poor states received every year between 1996 and 2011 (see map).

These grants were part of the original 1996 welfare reform agreement. Congress created them to address the fact that, under TANF’s funding structure, poor states receive less than half as much federal funding per poor child as other states.

Congress’s commitment to funding the Supplemental Grants started to slip last year when it funded them for only about two-thirds of the year; they ran out last July 1. When some members of the conference committee negotiating the payroll tax/unemployment insurance agreement sought to include funding for the grants in the bill, key Republican negotiators refused. (The committee included members from six of the 17 Supplemental Grant states: five represented by Republicans [Arizona, Georgia, Idaho, North Carolina, and Texas] and one represented by a Democrat [Montana]).

The end result is that the 17 states that have received Supplemental Grants for the last 15 years will receive significantly less federal TANF funding this year — $211 million less than last year and $319 million less than in earlier years.

Unlike some other issues that have stymied Congress in recent years, this one is not about money. Congress could have done what it did last year: pay for an extension of the Supplemental Grants by redirecting funds from another TANF fund, known as the Contingency Fund. Total federal funding for TANF would have remained unchanged.

The Contingency Fund is intended to help states during periods of economic distress. But, as we have noted, it is poorly designed and its funds are not well-targeted so they do not necessarily go to states with the greatest need.

By using a portion of the $612 million allocated for the Contingency Fund to fund the Supplemental Grants, Congress could have given the Supplemental Grant states money that they have relied on, while still leaving some money in the Contingency Fund for states that qualify for it.

To add insult to injury, much of the Contingency Fund money this year will go to states that already receive a substantial share of the TANF block grant and get much more TANF funding per poor child than the Supplemental Grant states. These states will receive more money this year than they received last year, while the Supplemental Grant states will get less.

New York is a case in point. With an unemployment rate of 8.0 percent (slightly below the national average), New York is poised to receive about $215 million from the Contingency Fund — about 35 percent of the total Contingency Funds available and more than all 17 Supplemental Grant states combined received in Supplemental Grant funds last year.

Meanwhile, the Supplemental Grant states are cutting services for some of their most vulnerable families. Florida, with an unemployment rate of 9.9 percent, is planning to cut its employment services for jobless workers. Georgia is reducing funding for child welfare services, child care assistance, and substance abuse services. Louisiana has entirely eliminated funding for Individual Development Accounts, which help low-income families build assets.

While there is no hope for getting funding for the Supplemental Grants this year, this issue — along with reforming how the Contingency Fund works — should be on the agenda when Congress renews TANF. When funds are limited, policymakers should make every effort to ensure that they go to the states and families that need them the most.

Three Things Worth Remembering About Unemployment Insurance

February 23, 2012 at 1:00 pm

Despite the recent deal to extend emergency federal unemployment insurance (UI), the two parties hold very different views of unemployment insurance, as my blog post this week for US News & World Report notes.  I highlight three points to keep in mind in future UI debates:

  • UI is a safety net, not a hammock. House Budget Committee Chairman Paul Ryan has warned of “a future in which we will transform our social safety net into a hammock, which lulls able-bodied people into lives of complacency and dependency.”  Research, however, mostly supports the view that UI helps people through tough times rather than turning them into lazy slackers.
  • UI is a cost-effective way to increase demand in a weak economy. The Congressional Budget Office (CBO) recently said that “Slack demand for goods and services . . . is the primary reason for the persistently high levels of unemployment and long-term unemployment observed today.”  CBO also found (see Figure 4 of the study) that UI is the most cost-effective policy for boosting slack demand of the 13 policies that it examined.  Moreover, emergency federal UI programs add little to long-term deficits because they are temporary; policymakers have always let them expire once the unemployment rate has fallen significantly — though not until it is much lower than it is now (see chart).
  • Reforms should help the UI system meet its goals, not undermine it. As the bipartisan, blue-ribbon Norwood Commission stated in the 1990s, “The most important objective of the U.S. system of Unemployment Insurance is the provision of temporary, partial wage replacement as a matter of right to involuntarily unemployed individuals who have demonstrated a prior attachment to the labor force.”  The commission recommended several reforms that would strengthen the UI system while continuing to meet that primary purpose.  But some other recent “reform” proposals — to impose an education requirement on UI recipients and allow states to divert UI funds for other purposes, for example — would weaken the UI system.

Higher Rents for Poorest Housing Recipients a Bad Idea

February 22, 2012 at 4:51 pm

A New York Times editorial today warns that raising rents on the poorest recipients of federal housing assistance, as both a House proposal and the President’s new budget would do, could impose unaffordable burdens on these households, all of whom have incomes below $3,000.

We share that concern and believe that policymakers should reject a rent increase.

The House proposal would require housing agencies and owners to charge families with little or no income $69.45 a month in rent (and more in future years based on inflation), up from the current maximum of $50.  Our analysis finds that this increase in the minimum rent could expose 491,000 households to serious added hardship and even homelessness.

These nearly half-million households include nearly 700,000 minor children, and 40,000 of the households include people who are elderly or disabled.

The President’s budget would raise minimum rents even higher than the House proposal — to $75 — so it would affect even more extremely poor families (about 15,000 more).

As the Times notes, if policymakers raise rents on the poorest housing recipients, they should at least continue to allow local agencies to make the rent increases optional.  Local agencies best know the households that they serve and should retain the flexibility to set the most appropriate policies for them.

Also, while agencies are required to provide hardship exemptions from minimum rents in certain situations, a HUD-sponsored study in 2010 found that these exemptions were very rare.  Policymakers should couple any rent increase with the changes needed to ensure that the hardship exemption accomplishes its intended goal of keeping minimum rents from pushing families out of their homes.

To Reduce Deficits, “Chain Link” Both Benefits and Taxes

February 22, 2012 at 4:31 pm

Policymakers can gradually trim the growth of benefit programs and boost future tax revenues by using the “chained” Consumer Price Index (CPI), rather than the official CPI, to adjust various federal benefits and provisions of the tax code to account for inflation, our new report explains.

Many economists believe that the official CPI overstates inflation and view the chained index as a better measure.  Switching to the chained CPI would be a sound component of a comprehensive package to put the budget on a sustainable course— if policymakers also make these adjustments:

  • Apply the change to both benefit programs and the tax code, and use the proceeds from applying the chained CPI to the tax code entirely for deficit reduction. Using the proceeds to finance a reduction in tax rates should not be acceptable.
  • Give long-time Social Security beneficiaries a modest benefit increase (“bump”). Switching to the chained CPI would lower Social Security benefits (relative to currently scheduled benefits) by amounts that compound each year that the recipient remains on the rolls.  That could lead to hardship among very old people.  Therefore, a modest increase for people who have received benefits for many years should accompany the switch to the chained CPI.  Both the Bowles-Simpson and Rivlin-Domenici deficit-reduction plans include such a bump along with their proposal to adopt the chained CPI.
  • Exempt Supplemental Security Income (SSI) or make other changes to SSI to mitigate the chained CPI’s impact. Applying the chained CPI to SSI, which serves very poor elderly and disabled people and still leaves them well below the poverty line, raises particular problems.  Policymakers should exempt SSI from the switch or soften the impact on SSI beneficiaries.
  • Specify which programs would adopt the chained CPI. The CPI appears in hundreds of places in the U.S. Code and other laws, but only about a dozen such provisions account for the bulk of the potential savings from switching to the chained CPI.  Lawmakers should amend specific statutes to specify the chained CPI, rather than enacting blanket language, and they should focus on areas with significant budgetary effects — essentially annual cost-of-living adjustments in retirement and related benefit programs and annual inflation adjustments in the tax code.

Switching to the chained CPI in mid-decade — after the economy is healthier — would trim deficits over the next ten years by roughly $100 billion to $150 billion, even with the benefit improvements that we recommend.  Savings would grow substantially in subsequent decades.  And adopting the chained CPI (along with a benefit “bump” for long-term beneficiaries) would close nearly one-fifth of Social Security’s shortfall over the next 75 years.

Several recent deficit-reduction packages have called for adopting the chained CPI, including the Bowles-Simpson plan, the Domenici-Rivlin recommendations, and the Senate’s “Gang of Six.”  We haven’t endorsed all elements of those packages and, in fact, we’ve criticized them vigorously where we disagreed.  But the chained CPI is one element that we can support.

More on the Unemployment Insurance Deal

February 21, 2012 at 5:37 pm

We’ve stated briefly how Friday’s agreement to extend federal emergency unemployment insurance will affect the number of weeks of benefits available.  That agreement also made other changes to the UI system, as this excerpt from our analysis explains:

  • Drug testing — The conference agreement allows states to conduct drug tests on applicants for UI if they were terminated from their most recent job because of a drug-related offense.  It also allows states to conduct drug tests on UI recipients applying for occupations that typically require new employees to pass a drug test.  Both of these instances are consistent with existing law.
  • State demonstration projects — The House bill weakened the basic federal protection of the UI system — that states use the money paid into their UI trust funds solely to provide benefits to unemployed workers — by allowing up to ten states per year for the next three years to use those funds for broadly defined “demonstration projects” designed to “expedite the reemployment” of UI recipients and “improve the effectiveness” of state UI systems.  Among other things, this broad language would have allowed states to replace state or local funds now used for job training or other such purposes with diverted UI funds and then shift the withdrawn funds to other uses, including tax cuts.  The net result could have been a reduction in unemployment benefits with little or no offsetting increase in employment services.The conference agreement instead allows only ten states in total to participate in such demonstration projects over the next three years, and specifies that the demonstration projects be voluntary programs that connect unemployed workers with employers willing to offer them a temporary, suitable job at a market wage with all the normal labor market protections.  These programs would offer workers the opportunity to learn new skills while maintaining their eligibility for UI benefits.

    It would have been better to avoid any provision that weakened one of the foundations of the UI system.  The demonstration programs authorized by the conference agreement were probably a necessary compromise to achieve agreement on the overall bill, but policymakers should draw a line at further erosion of that foundation.

  • Federal job search requirements — The conference agreement introduces a federal requirement that all UI recipients must be “able to work, available to work, and actively seeking work.” Expecting UI recipients to look for work is eminently reasonable, which is why the vast majority of state programs already have such requirements. . . .

The conference agreement also provides over $1 billion of additional funding for states to provide services for the unemployed.

Nearly half a billion dollars will be appropriated to states for reemployment services and reemployment and eligibility assessments.  As proposed in both the President’s American Jobs Act and the December House bill, these services will not only help the long-term unemployed who are receiving UI to get back to work more quickly, but will also help states to prevent UI overpayments and ensure that UI recipients receive the benefits they have earned.

The agreement also provides nearly half a billion dollars to temporarily finance state short-term compensation programs, also known as “work-share,” which give employers an alternative to laying off workers.  And it provides $30 million in grants to states that offer self-employment assistance programs to support long-term unemployed individuals who establish businesses.