Report Sheds Light on Block Grants

We’ve heard a lot about how block-granting Medicaid will allow states more flexibility but we haven’t heard much about the potential impact such a proposal might have on low-income families.  The Center on Budget and Policy Priorities recently issued a report that sheds light on that issue. CBPP’s report, “How States Have Spent Federal and State Funds Under the TANF Block Grant” analyzes the effects of welfare reform over the last fifteen years. It finds that, over time, states used the flexibility of the Temporary Assistance to Needy Families (TANF) block grant to redirect funds in ways that were unrelated to low-income families.

While block grants initially lure states with the offer of flexibility, they ultimately leave them worse off—especially when, as in the case of TANF, a recession hits or the block grant amount is not adjusted for inflation and changing need, according to the CBPP report. Research also shows that block-granting TANF hurt the most vulnerable families: In 1995, AFDC reached 68% of families with children living in poverty, by 2010, TANF only reached 27% of those families.

The CBPP report’s findings raise concerns about the extent that states have used funds beyond the areas of core welfare reform.

  • Spending on basic assistance decreased. When TANF began, 70% of combined federal TANF and state MOE funds were used on basic assistance. In 2011, it fell to 29%. In 9 states, the number is less than 15%.
  • States initially shifted resources from cash assistance to support child care or work activities, but those investments have leveled off nearly a decade ago. Spending in these areas remained flat over the last decade and declined in recent years. States now spend only about a quarter of TANF and MOE funds on child care or work.
  • States are using a significant and growing share of TANF and MOE funds to support other state services. In some cases, states have expanded useful existing services. But, in other cases, states have used TANF/MOE funds to replace existing state funds and free those funds for purposes unrelated to helping low-income families. Some states have increased their reported MOE spending by claiming existing state and third party non-governmental spending that were not previously reported. At the same time, states have taken advantage of limited reporting requirements for federal TANF funding and used the money to replace existing state spending, fill state budget holes and fund new spending outside of welfare reform. Tightening restrictions on what can be claimed in the MOE requirement and how federal TANF dollars can be spent would help ensure funds are spent to help low-income families.

TANF’s deterioration over the last 15 years demonstrates key lessons when it comes to block grants. First, a block grant structure is incompatible with providing a safety net for low-income families. A block grant offers only a fixed level of funding that is not adjusted based on need. During an economic downturn, need increases as job opportunities for families decrease. A block grant forces states to bear any burden beyond the fixed spending level without help from the federal government. Second, states have not prioritized maintaining a strong safety net for families and children. In every state, TANF plays a smaller role in providing cash assistance to poor families than AFDC did. Third, there is less accountability for federal funds under a block grant structure than under other shared federal-state funding arrangements. TANF limited reporting requirements and expanded flexibility, leading states to use federal funds for purposes outside core welfare reform areas.

The TANF block grant shifted the cost of helping low-income populations to the states, and as a result, our most vulnerable families suffered. The block grant structure is not an approach that should be duplicated to Medicaid. Medicaid covers two-thirds of children living in poverty and about half of all Medicaid enrollees are children. A Medicaid block grant would make the program less responsive to economic downturns and jeopardize the gains we have made in covering children.

Karina Wagnerman
Karina Wagnerman is a Senior Health Policy Analyst at the Center for Children and Families