States Exploit Loophole to Meet Spending Requirements to Get Federal Welfare Money

By Matt Cover | May 21, 2012 | 12:25am EDT

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( – States are exploiting a loophole in the federal welfare reform law enacted in 1996 in order to meet the state spending requirements to get a full dose federal welfare funds, Rep. Geoff Davis, chairman of the House Ways and Means Subcommittee on  Human Resources.

"Many States have scoured their budgets to find other current program spending--such as for Pre-K, child care, and after school programs--they could report as TANF spending," Davis said at a hearing on Thursday. "Others began counting third-party spending--such as assistance offered by food banks and Boys and Girls clubs--as TANF spending.  One State even apparently found a way to count the value of volunteer hours by Girl Scout troop leaders as State TANF 'spending.' 

"Now, I want to be clear that this is not illegal," said Davis. "But that does not make it right. "

The Government Accountability Office delivered a report on the practice to Davis's subcommittee on Thursday. 

When Congress reformed federal welfare programs in 1996 it included a requirement that 50 percent of people on a state’s welfare rolls be working at least some of the time.

States that do not meet this requirement can have their federal TANF payments reduced.

TANF also includes an incentive for states to reduce their welfare rolls, allowing those that reduced the number of people on welfare to apply those reductions as credits when calculating the percentage of welfare recipients who were working. Known as a caseload reduction credit, the provision allows states that have reduced their welfare rolls to meet the 50 percent work requirement, even if fewer than 50 percent of recipients actually hold a job.

States can also meet their work requirements if they increase their own welfare spending – known as Maintenance of Effort (MOE) spending – beyond the federal minimum. However, states have increasingly been using a loophole in this provision to meet their work requirements without actually reducing welfare spending.

The loophole works because states are allowed to count outside spending and so-called new spending as MOE spending, applying this new-found spending toward their caseload reduction credits.

The effect is that states do not have to increase their own welfare spending, get their full federal welfare grants, and fewer welfare recipients have to work.

“In fiscal year 2009, 32 of the 45 states that met their required work participation rates for all TANF families claimed excess state MOE spending toward their caseload reduction credit,” GAO said in its report. “Sixteen of these states would not have met their rates without claiming these expenditures.”

Those states accounted for significant reductions in their work requirements – some as much as 20 percentage points.

“Among the states that needed to rely on excess state MOE spending to meet their work participation rates, most relied on these expenditures to add between 1 and 20 percentage points,” the report said.

States can count outside spending as their own, and apply it toward reducing their actual work requirements, as long as it meets one of the four broad goals of TANF: providing assistance to needy families, promoting job training and employment, preventing or reducing out-of-wedlock pregnancies, and encouraging two-parent families.

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