Aug. 22, 2016, marks the 20th anniversary of the signing of the Personal Responsibility and Work Opportunity Reconciliation Act, known as welfare reform, which profoundly changed the way low-income families received government assistance. The law replaced the federal Aid to Families With Dependent Children program with Temporary Assistance for Needy Families (TANF), which requires that recipients engage in any of a set of work-related activities, imposes a five-year lifetime cap on benefits, and, in many states, includes asset limits: caps on the amount of cash, savings, or material property that a family can hold. Although the overall success of TANF is widely debated, the anniversary of the legislation provides an opportunity to reflect on the impact of asset limits using 15 years of data.
Under TANF, the federal government provides block grant funds to states. In turn, state policymakers set rules that govern which families may receive assistance; 42 states and the District of Columbia include asset limits among these rules. Today, these thresholds range from $1,000 to $10,000, and more than half of states have set their limits at $2,500 or less.
Some advocates argue that imposing asset limits harms families attempting to gain financial security and independence, while others maintain that people with substantial assets should not qualify for government assistance. Within this debate, other questions to consider include whether removing the limits could affect state caseloads or administrative costs, and to what extent.
Low asset thresholds may reduce the number of eligible families, cutting caseloads in the short run, but they also could prevent applicants from maintaining a financial safety net or encourage families to spend down savings before applying for assistance. Such divestment could increase caseloads in the long run: While receiving TANF assistance, families may save enough to exceed the threshold and lose their benefits before they are able to establish financial stability, potentially causing them to re-enroll, in some cases repeatedly.
When asset limits create this cycle of gained and lost eligibility, they may increase the administrative costs that states incur when screening and enrolling applicants. States must unravel the complex financial lives of low-income families to verify that applicants and recipients have limited or no assets, and as households churn in and out of the program, the costs of repeated processing mount.
Pew recently examined effects of asset limits on program caseloads and administrative costs and found that:
- Independent of asset limits, TANF enrollment has significantly declined since 2000. TANF caseloads decreased by more than 38 percent between 2000 and 2014 with 44 states and the District of Columbia experiencing net declines.
- Among the seven states—Alabama, Colorado, Hawaii, Illinois, Louisiana, Maryland, and Virginia—that removed their TANF asset limits between 2000 and 2014, there were no statistically significant increases in the number of TANF recipients. Louisiana saw the number of recipients per capita plummet by 57 percent after removing its asset limit, while Ohio, which removed its threshold before 2000, saw its caseload drop by 50 percent. Changes in state thresholds have not affected the overall nationwide decline in caseloads.
- Raising or eliminating asset limits does not affect the number of monthly TANF applicants. After controlling for a state’s unemployment, population, and other characteristics, the level of the asset limit does not affect the number of applications a state receives. Conversely, an increase in unemployment is correlated with a rise in the expected number of applications. Together, these findings suggest that an individual’s decision to seek assistance is most likely linked to conditions within the household rather than the characteristics of the program.
- States that change their asset limits from low ($2,500 or less) to moderate ($3,000 to $9,000) or eliminate them see a decrease in their administrative costs. In particular, among states with moderate asset limits and an exemption for at least one vehicle, administrative expenditures were about 2 percent lower than those in states with low thresholds.
The federal and state governments work together to fund a host of antipoverty programs, and TANF is among the most visible. As scholars and practitioners reflect on the successes and challenges that have emerged over the two decades since welfare reform, they should consider these findings, based on 15 years of data, showing that maintaining a low TANF asset limit returns no advantages to states in terms of caseload burdens or costs. This effectively means that if states adopt moderate limits and vehicle exemptions, they could offer TANF benefits to more people without experiencing meaningful caseload increases and reduce administrative costs.
Sarah Sattelmeyer is an officer and Walter Lake is a senior research associate with the financial security and mobility project.