You asked for a summary of the Temporary Assistance for Needy Families (TANF) provisions in the federal Deficit Reduction Act of 2005 (DRA) and their expected impact on Connecticut's Jobs First program.

We intend to revise this report as we receive additional information about the provisions' implementation.

SUMMARY

In February 2006, Congress passed the Deficit Reduction Act (DRA) of 2005. This omnibus bill included a number of changes to the TANF program, most of which take effect on October 1, 2006. Although they are not as sweeping as earlier Congressional proposals to reform TANF, particularly in the area of work requirements, they are expected to put greater pressure on states to place more families who are receiving TANF-funded assistance (e. g. , cash welfare) in jobs.

The act's two main provisions that will create this pressure are (1) changing the base year of the caseload reduction credit (states that reduce their caseloads see a corollary reduction in the percentage of families who must be engaged in work activities) and (2) requiring states to include more families in their TANF work participation rate “denominator” than previously required. When combined, these two provisions are expected to have a fairly significant impact in Connecticut

because they will require more families, many of whom have work barriers, to participate in the Jobs First Employment Services (JFES) program.

The DRA also puts more pressure on states to verify information on work participation. It establishes penalties when states fail to do so in a way that meets federal requirements. And it more clearly defines for states the allowable work activities, giving states less flexibility than they enjoyed when these activities were outlined in the original 1996 TANF law.

TANF PROVISIONS IN DRA

Caseload Reduction Credit

The 1996 TANF law (Personal Responsibility Work Opportunity Reconciliation Act, PL 104-193) required states gradually to increase the percentage of public assistance recipients who had to be engaged in work activities. By 2002, 50% of all families and 90% of two-parent families receiving assistance had to be engaged. (The rate has been calculated by dividing the number of families receiving TANF-funded assistance who are engaged in work activities (numerator) by the total number of families receiving TANF assistance (denominator).

The law allowed these percentages to be reduced if states could show that their welfare caseloads were dropping. This “caseload reduction credit” allowed states to reduce their work participation rate by the same percentage that their caseload had dropped since 1995. In 1995, welfare caseloads were at an all-time high. Once states began their TANF programs, caseloads quickly dropped and many states, including Connecticut, enjoyed fairly significant credits. Indeed, Connecticut's credit is currently 26. 5%, which has reduced its participation rate to 23. 5%. This phenomenon has occurred nationally—according to a June 2006 report by the National Governor's Association (NGA), the caseload reduction credit resulted in a 32% national average of actual work rates for all families in FY 04.

The DRA changes the base year for calculating the credit from 1995 to 2005, beginning October 1, 2006. This means that the credit is reduced to close to zero in Connecticut, where caseloads have stayed fairly constant over the last few years. By having a smaller credit, the state will move closer to a 50% work participation rate, double its current rate.

Separate State Programs—Two-Parent and Other Families

Another DRA provision would likely result in the need to place more families in work activities. It concerns how the state currently treats two-parent and certain other families who previously were exempt from the work participation rates.

Fairly early into implementing TANF, the state realized it would be difficult to achieve the 90% work participation rate for two-parent families. Consequently, it decided to provide assistance to these families (1,300 as of May 2006) with state funds. Doing this made it a “separate state program” or SSP rather than a TANF- funded one, which permitted the state to bypass the participation rate requirement as well as other TANF rules. More recently, the state moved “exempt” families (those receiving cash assistance in which the household had a member who was incapacitated, caring for incapacitated household member, over 60, or unemployable) into SSP status. (Child-only cases, in which only the child receives assistance for a variety of reasons (e. g. , adult in household is non-parent caretaker) are not included in the participation rate. )

Although these individuals are not considered to be receiving TANF assistance, the state has been able to count its expenditures for them towards meeting the TANF law's “maintenance of effort” (MOE) requirement. (The MOE provisions require states to maintain their spending on assistance for poor families at the same level as they were before TANF passed. )

Under the DRA, states must include SSPs in the work participation rates starting October 1, 2006. This means that these families are added to the participation rate denominator. When combined with the loss of the caseload reduction credit, the state could have to double the number of families who will have to participate in work-related activities for it to avoid a financial penalty. (The state has not determined whether these families will remain as SSP or be combined with the regular TANF population, for whom the TANF rules (e. g. , time limit) apply. )

Some of these families can still be excluded from the participation rate calculation. For example, most child-only cases can continue to be excluded. Likewise, states can exclude “work-eligible” parents caring for a disabled family member. (The Department of Social Services (DSS) originally had been concerned that these families would have to be included in the new rate calculation. ) Conversely, the rule permits the state to include in their work participation rates parents of children receiving cash assistance who themselves are receiving Supplemental Security Income (SSI). If the state could identify these parents, and the parents could meet the 30-hour participation requirement, this could help the state achieve a higher participation rate.

Implications for Jobs First Employment Services Program

A higher work participation rate will force the Jobs First Employment Services (JFES) program to engage more families. (In general, to meet the work participation requirement, an adult in the household must be engaged in a work related activity for at least 30 hours per week. ) At the May 2006 TANF Advisory Council meeting, DSS estimated that adults in more than 3,000 additional families would have to be engaged in work activities in order to meet the new federal requirement, double the number engaged in work activities at that time. Both DSS' and the Department of Labor's FY 07 budgets include funding to support this mandate, including money for additional child care.

Financial Implications. Federal law imposes a penalty of up to 5% of the state's TANF block grant when a state fails to meet the work participation rate requirement. This increases by 2% for each year of noncompliance, up to 21%. DSS noted at the advisory council meeting that it was unlikely that the federal Department of Health and Human Services (HHS) would impose a full sanction on the state if it could show that it was making a good faith effort to achieve the rate and enter into a “corrective compliance” plan.

While the state might be able to avoid a financial sanction if it fails to meet the higher participation rate requirement, it could still bear an additional financial burden. This is due to a pre-DRA provision in the TANF law that requires states to meet a higher MOE requirement (80% instead of 75%) when it fails to meet the work participation rate.

DSS' Kevin Loveland stated recently he does not anticipate penalties immediately since states can submit corrective compliance plans the first year they do not meet the rate. He added that the state would probably not know its official rate until late 2008. Loveland also noted that the state has comfortably exceeded the MOE requirement, so even if the 80% requirement were imposed, it would not necessitate any significant new state spending.

Countable Work Activities

The original TANF legislation established 12 work-related categories into which states could place adults in TANF families and have them count towards the work participation rate. But neither the law nor

implementing HHS' regulations ever defined specific activities that would be acceptable within these categories. The DRA required HHS to define these activities in regulation by June 30, 2006.

We have reviewed the interim final rule on this provision and are still trying to determine the extent to which these new definitions will affect the JFES program. For example, the rule requires that all work activities have a work focus. So if a JFES participant is engaged in basic education or English as Second Language (ESL), this will have to be directly related to a specific job in order for it to count in the participation calculation.

Verifying Work

Another DRA provision required HHS to provide rules to states for verifying hours of work participation on a monthly basis. (In general, adult family members must be engaged in 30 hours of weekly work-related activities and only certain activities (e. g. , job search) can count towards the first 20 hours). DSS asserts that this will likely increase DSS' administrative burden and information system costs. It could also place a burden on potential employers and training providers, the NGA report suggests.

The interim final rule's requirements include daily supervision and documentation of job search and job readiness activities. It prohibits states from using “exception” reporting (state assumes clients are participating in scheduled hours unless the service provider reports otherwise and requires them to report actual, instead of scheduled, work activity hours. (We are still attempting to determine the extent to which these particular requirements will differ from how the state currently verifies and documents participation and whether the state will need additional resources in order to meet them. )

Although the state must submit a plan for this system by October 1, 2006, it has an additional year to make it fully operational.

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