States Hold Onto Federal Dollars Meant for Needy Families

Vanessa Mccrickard, a single mother of two from Woodbury, Tennessee, is the sort of person welfare is designed to help.

Mccrickard says she can’t find reliable child care in her town of roughly 3,000, which is about 50 miles from downtown Nashville, so she can’t work full-time. She receives child support from the father of her oldest child, but nothing from the father of her 2-year-old. She struggles to pay her bills.

Mccrickard applied for Tennessee’s version of Temporary Assistance for Needy Families (TANF), the federal block grant program that replaced traditional welfare in the 1990s. But state officials told her that if she got cash assistance, the state would deduct the same amount from her child support payments. And she’d have to work at least 30 hours a week.

She says her inability to get assistance is especially frustrating because Tennessee has the money to help her — $732 million, to be exact. That’s the amount of federal welfare money the state is holding in reserve.

“To know the state has all this money that’s not going to the people who need it — what about the moms that don’t have help?” she said.

Tennessee isn’t alone. Between 2015 and 2018, the 38 states holding back welfare money boosted their TANF reserves by 41%, according to the Congressional Research Service. One reason is the historically low unemployment rate. But tighter state requirements also have reduced caseloads.

Tennessee’s 2019 welfare surplus is the largest in the country, according to a recent report by the Beacon Center of Tennessee, a fiscally conservative think tank. Last year, Tennessee spent only $71 million of the $191 million it got from the federal government.

Meanwhile, nearly 1 in 6 Tennesseans lives in poverty. The disconnect spurred a protest this week by U.S. Rep. Steve Cohen, a Memphis Democrat, who sent a letter to Republican Gov. Bill Lee demanding to know that state’s plan for spending the money.

“When 15.3 percent of Tennesseans are living in poverty, it is inexcusable for the state to withhold millions of federal dollars allocated to help this exact population,” Cohen wrote. “At best, this has resulted in Tennessee’s gross mismanagement of federal dollars; at worst, Tennessee has deliberately chosen not to assist needy families.”

The federal government allows states to hold unused welfare dollars in reserve for recessions or natural disasters, and when Tennessee’s surplus first came to light, state officials said they were being fiscally prudent. They also noted that earlier this year, they increased monthly cash assistance by a fifth.

But last week, Lee told reporters the state was working on a plan to spend more of its welfare reserves. (Lee’s office did not respond to a Stateline request for an interview.)

Sky Arnold, press secretary for the Tennessee Department of Human Services, said in a prepared statement the state’s large TANF reserve is mostly the result of its strong economy and low unemployment rate, which is about 3.4%.

But Arnold also said that work requirements and other rules have persuaded many people to forgo state aid and instead seek help from nonprofits in their communities.

Flexibility for States

Under the 1996 welfare law that created TANF, the federal government provides $16.5 billion a year to the states, and states are required to contribute another $10.3 billion. States can use the money to make direct cash payments to welfare recipients, but they can also spend it on child care, education and job training, transportation, services for children who are at risk of being neglected and abused, and other services to help low-income families. In 2018, 1.2 million families, comprising 3.1 million people, received help.

TANF caseloads typically drop when the economy is strong. Between 2015 and 2018, the number of cases declined by a quarter, from roughly 3.2 million to 2.4 million, according to the U.S. Department of Health and Human Services. But analysts across the political spectrum say state policy changes have helped fuel the decrease.

Arizona, for example, in recent years has cut benefits, shortened time limits to 12 months (the shortest in the country), and imposed other eligibility restrictions. It had nearly $50 million in surplus TANF money in 2018, according to the Congressional Research Service.

“They made their sanctions more onerous and saw a big drop in their caseloads,” Pavetti said.

Analysts also note that states are spending less on cash assistance and diverting the money for other purposes, such as pre-kindergarten programs. Tennessee, for example, spends only 13% of its TANF money on basic assistance.

“States do not spend money on the purposes of welfare reform,” said Robert Rector, a senior research fellow at the Heritage Foundation, a conservative Washington think tank. He’d like to see states spend more on promoting marriage stability, a tenet of the 1996 welfare law.

Most states spend a little more than half of their combined federal and state TANF dollars on basic assistance for families with children, child care for low-income families and work-related activities, according to a February report by the Center on Budget and Policy Priorities.

A handful of states spend less than a quarter on those areas, the report found.

Money Out the Door

Though Tennessee has the largest surplus, other states also are holding back significant amounts of TANF money, according to the Congressional Research Service.

In 2018, Hawaii had $281 million in unspent TANF money and Pennsylvania was sitting on more than $431 million. In contrast, California, Illinois and Massachusetts were among the states with a zero balance.

“I’m concerned the reserve is larger than it needs to be,” said Scott Nakasone, assistant division administrator for the Hawaii Department of Human Services. “I do worry that if we don’t spend it, then our clients aren’t benefiting from it. We definitely need to make changes to get that money out the door.”

Hawaii is looking for ways to spend down its reserve, including increasing the amount of cash assistance that low-income families receive, Nakasone said.

California, which has one of the highest child poverty rates in the nation, at 18%, receives about $3.5 billion in federal TANF dollars each year.

The state focuses its spending on programs designed to reduce parental dependency on government benefits, such as child care assistance and job training, said Pete Cervinka, chief deputy director at California’s Department of Social Services. “All of our funds are fully committed each year. We’re pretty proud of our TANF program.”

Tennessee should spend down much of its reserve and keep about $210 million for a rainy day, said Stephanie Whitt, the Beacon Center’s executive vice president and the author of the report.

That way, Whitt said, the state can “really focus on getting people back to work while there are still jobs available … there’s no time to do it like when you’re in a good economy.”