Going, Going, Gone – How the Budget Eliminates the TANF Balance and Shortchanges Low-income Families
Several important aspects of the budget bill’s funding for public assistance programs have received little or no attention:
- The bill siphons off funding intended for low-income families and uses it for other purposes, such as tax cuts.
- The proposed budget eliminates the current $84 million balance in federal funds from the block grant known as Temporary Assistance to Needy Families (TANF), even though spending is being cut significantly for the three major programs financed with the TANF funds.
- The budget may significantly underfund Wisconsin Works (W-2), because participation in the program has grown sharply over the past three months, and the proposed W-2 spending assumes a substantial drop in participation.
A new issue brief released today by the Wisconsin Budget Project explains how the budget has the paradoxical effect of eliminating the TANF balance, even as it makes cuts to the following programs:
- It cuts W-2 funding by $34 million over the next two years;
- It reduces funding for child care subsidies (Wisconsin Shares) by about $35 million; and
- It decreases total spending for the state Earned Income Tax Credit (EITC) by about $16 million.
In light of those substantial spending reductions, how is it that the budget wipes out a sizable TANF balance over the space of two years? The answer is that the 2013-15 budget bill adds to a funding shift initiated two years ago. Specifically, the Governor’s proposal does the following:
- Increases by $27 million per year the amount of TANF used to pay for the EITC, in place of state General Purpose Revenue (GPR), which is on top of the $37 million per year increase in supplantation contained in the 2011 budget adjustment bill and the 2011-13 biennial budget.
- Uses $91 million more from TANF funding to pay for the EITC over the next two years than the Dept. of Children and Families (DCF) proposed in its 2013-15 budget request.
Prior to passage of the 2011 budget adjustment bill (Act 10), the state had been planning to use just $6 million per year of TANF funds to pay for the EITC. The following bar graph illustrates the sharp increase in the TANF share of EITC funding in the last biennium and the proposed budget, even as total spending for the EITC was being reduced. The proposed transfer of TANF funds for that purpose frees up $140 million of GPR funding in 2013-15 to be used for other purposes, such as helping make possible the proposed income tax cuts.
As a result of the sharp increase in supplantation of state EITC funding, the proposed budget continues to reduce the funding set aside for the Wisconsin Shares child care subsidies, which will drop by $35 million over the next two years. DCF projects that the proposed funding level for those subsidies is enough to meet the anticipated demand, but the spending reductions are achieved by continuing policies that have severely squeezed reimbursement rates for child care providers who are still willing to take children in the Wisconsin Shares program. Over the past four years those rates have declined by about 17% in nominal dollars and by 23.4% when adjusted for inflation. (See our short summary of the early education provisions in the budget bill.)
The funding for paid work placements in the W-2 program is being cut by $34 million, based on the assumption that the number of placements will fall by 1% each month from the December 2012 level. Yet the actual number has increased sharply over the past three months. Our analysis found that if the growth stops for the next three months, and the caseload begins dropping by 1% each month in July, W-2 spending would be $18 million higher than the level proposed by the Governor.
The new report explains that because the increased supplantation of EITC funding eliminates the $84 million TANF balance, it creates a significant TANF structural deficit. As a result, the cuts in W-2 and Wisconsin Shares will need to be even deeper in future years unless the state sharply reduces the use of TANF dollars to replace state funding for the EITC.