• Child care spending accounted for just 13.9 percent of Wisconsin's total TANF spending in FY 1998, but that climbed to 43.9 percent in FY 2004 and it continues to grow.
• The state appropriation for W-2 cash assistance in FY 2007 is less than one third of the appropriation for that assistance in FY 1999.
• TANF appropriations for "other programs" (such as the state earned income tax credit, or EITC), which are outside the core components of W-2, increased from less than $32 million in FY 1999 to more than $86 million from 2001 through 2005, before falling slightly in the current budget ($77 million in 2007).

The Changing TANF Beneficiaries

Although many people still think of TANF as primarily a source of funding for parents who are unable to obtain or keep unsubsidized employment, that is no longer the case. The vast majority of current TANF beneficiaries do not receive cash assistance.

In Wisconsin, TANF currently pays for only about 7,200 W-2 cash assistance cases and 11,400 child-only cases (in the kinship care and caretaker supplement programs). TANF funds assisted an average of more than 31,000 Wisconsin families per month receiving child care subsidies and more than 216,000 who receive the state Earned Income Tax Credit (EITC).

The July 2006 caseload of fewer than 7,200 families receiving W-2 cash assistance compares to enrollment in the Aid to Families with Dependent Children (AFDC) program of about 81,500 in 1991 and 35,000 in August 1997, the month before the W-2 program began to be implemented statewide. Even after subtracting from the 1991 AFDC caseload a rough estimate of the number of child-only cases (which are now separate from W-2 but were part of AFDC), the current W-2 enrollment represents roughly a 90 percent drop from the comparable AFDC figure 15 years ago.

Low-income working parents who need assistance with child care have been one of the chief beneficiaries of the shifts in TANF funds. When Governor Thompson and state legislators passed the W-2 legislation in 1996, they made a commitment that they would fully fund the Wisconsin Shares child care subsidy program, and not just for families who had previously received AFDC or W-2 assistance. Thanks to the flexibility of the TANF block grant and the sharp drop in spending for W-2, the state has been able to meet its commitment to Wisconsin Shares, which now serves an average of more than 54,500 children per month and their employed parents. Spending for the child care subsidies increased 185 percent from CY 1998 to 2005.

Savings for Taxpayers, but Future Challenges

In 1999, after many states had built up substantial TANF reserves, the federal government began allowing states to use TANF funds to pay for refundable earned income tax credits (EITCs). The objective was to encourage more states to adopt such credits. However, Wisconsin already had a refundable EITC and quickly began taking advantage of the policy change by replacing roughly $50 million per year of state funds with TANF funds. Over the last 8 fiscal years (FY 1999 through 2006), Wisconsin taxpayers have saved about $430 million from the use of TANF funds to replace state general fund revenue.

At some point in the not-too-distant future the state will have to confront the issue of whether it can continue using substantial amounts of TANF funds each year to offset state funds for the EITC. One reason this is becoming an issue is that the TANF block grant has been frozen since the program's inception a decade ago, but inflation has been about 29 percent over that period. If the TANF block grant allocations had been indexed to inflation, Wisconsin's allocation ($317 million per year) would be about $91 million higher in fiscal year 2007.

In light of the frozen funding level and the continued growth in spending for child care subsidies, it will be difficult for the state to continue to use more than $50 million a year of TANF funds for the EITC, unless substantial reductions are made in child care eligibility or other programs. Many cuts have already been made in the last two budgets, and those are detailed in the WCCF report published by Brookings. The cuts include, among many others, the elimination of all of the following annual appropriations: $10 million for the Workforce Attachment program, $7.5 million for the Early Childhood Education Initiative, about $6.1 million for work-based learning programs, $3.5 million for the Partnership for Full Employment, and $1 million for substance abuse services.

Notwithstanding those cuts, more are likely in the next biennial budget if the state continues to fund most of the EITC with TANF dollars.

Assessing W-2 Performance

Another issue examined in our paper for the Brookings Institution is the difficult task of measuring success. In Wisconsin and other states, caseload reduction has all too often been the chief indicator that politicians have used to gauge welfare reform's effectiveness. However, there are many reasons why it is not reasonable to assume that the people who are no longer receiving cash assistance are working or succeeding.

The extensive report by the Legislative Audit Bureau in 2005 demonstrated that most former participants do not appear to be on their way to achieving self-sufficiency. For example, the LAB found that only 42 percent of those who left W-2 in 1999 earned more than the poverty level in 2003, even after adding in the value of state and federal tax credits.

Over most of the last decade the state and W-2 agencies have not routinely collected data that would facilitate measuring whether former W-2 or participants are escaping poverty and moving toward self-sufficiency. To its credit, the Department of Workforce Development included improved performance measures and incentives in the current contracts with the local agencies. Nevertheless, additional improvements are needed in this area, both to judge how well W-2 is working and to learn how to stretch the dollars further by determining which agency practices are most effective.

Summary and Conclusions

The nature of the TANF program has changed significantly over the past decade. What began as a cash assistance program has become a funding source for far-reaching programs that assist substantially more of Wisconsin's working families. The flexibility of the block grant funds has also enable Wisconsin to substitute federal dollars for much of the state funding for the earned income tax credit, saving Wisconsin taxpayers about $430 million over the last 8 years. However, Wisconsin has had to make significant cuts in TANF-funded programs in recent years; and many more cuts may be necessary in the 2007-09 budget.

If federal funding remains frozen, and if our state wants to avoid cutting core programs for low-income working families, like Wisconsin Shares, the state will have to reconsider the ongoing practice of using TANF funds to replace state funding to the EITC. In addition, the state should continue building on the recent efforts to improve monitoring of W-2 agencies' effectiveness, in order to make the most of the TANF dollars allocated in the agency contracts.