Function 600 - Income Security
Reduce TANF’s State Family Assistance Grant by 10 Percent
CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.
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This option would take effect in October 2019.
Temporary Assistance for Needy Families (TANF) provides cash assistance, work support (such as subsidized child care), and other services to some low-income families with children. Almost all of the federal government's TANF funding is provided through a block grant called the State Family Assistance Grant (SFAG), which totals $16 billion annually. The states administer TANF and have considerable latitude in determining the mix of cash assistance, work support, and other services that the program provides. The states also determine the requirements for participation in work-related activities that some recipients must meet to avoid a reduction in the amount of cash assistance they receive through the program.
Beginning in October 2019, this option would reduce the SFAG by 10 percent.
Effects on the Budget
Reducing the amount of the SFAG would decrease federal spending by about $13 billion through 2028, the Congressional Budget Office estimates. Initially, the option would save less than $1.6 billion per year because some states do not spend all of their funding in the year that they receive it. Thus, some of the funding that would be eliminated by this option would not have been spent until later years under current law. CBO estimates that states spend the vast majority of funding within two years of receipt, but some states take eight years to exhaust it. Thus, the reduction in spending will not equal the reduction in funding until 2028. However, the average difference between spending and funding from 2020 through 2028 is only about 10 percent. The speed with which states spend their funding is the main source of uncertainty for this option.
Gauging the savings for alternatives that would reduce the SFAG by other percentages is fairly straightforward. For example, cutting the SFAG by half as much (that is, 5 percent) would reduce spending by about half the amount. If cuts were much larger than 10 percent, states might spend the remaining funding more quickly, which could slightly reduce the savings over the next decade.
One argument for this option is that it might prevent some families from becoming dependent on federal aid, if states responded to the reduction in SFAG funding by making their work requirements more stringent to reduce their spending on cash assistance. The more stringent work requirements would probably result in shorter periods of cash assistance for some families. And, in some cases, family members might find work more quickly, either to compensate for the loss of cash assistance or to comply with the work requirements. However, some states might respond to the reduction in funding by decreasing their spending on work support, which could make finding and keeping jobs harder.
An argument against this option is that it would reduce the amount of assistance available to low-income families with children. Because federal spending on TANF has stayed about the same since 1998, the program's first full year, the purchasing power of that funding has fallen by 28 percent. As real (inflation-adjusted) spending on TANF has decreased, so has the number of families who get cash assistance from the program—from 3.2 million families in 1998 to 1.1 million in 2017. In comparison, roughly 5.5 million families had income below the poverty threshold in 2017. Reducing real spending on the program by an additional 10 percent would further reduce the number of families that TANF served or the amount of assistance that it provided.