State Policies to Assist
Working-Poor Families
Liz McNichol
John Springer
The Center on Budget and Policy Priorities, located in Washington, D.C., is a non-profit research and
policy institute that conducts research and analysis of government policies and the programs and public policy issues
that affect low- and middle-income households. The Center is supported by foundations, individual contributors,
and publications sales.
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Board of Directors
David de Ferranti,Chair
The World Bank
John R. Kramer, Vice Chair
Tulane Law School
Henry J. Aaron
Brookings Institution
Kenneth Apfel
University of Texas at Austin
Barbara Blum
National Center for
Children in Poverty
Columbia University
Marian Wright Edelman
Children's Defense Fund
James O. Gibson
DC Agenda
Beatrix A. Hamburg, M.D.
Cornell Medical College
Frank Mankiewicz
Hill and Knowlton
Richard P. Nathan
Nelson A. Rockefeller Institute
Institute of Government
Marion Pines
Johns Hopkins University
Sol Price
Chairman, The Price Company
(Retired)
Robert D. Reischauer
Urban Institute
Audrey Rowe
Lockheed Martin IMS
Susan Sechler
German Marshall Fund
Juan Sepulveda, Jr.
The Common Enterprise/
San Antonio
William Julius Wilson
Harvard University
════════ ════ ════════
Robert Greenstein Iris J. Lav
Executive Director Deputy Director
December 2004
Center on Budget and Policy Priorities
820 First Street, N.E., Suite 510
Washington, DC 20002
(202) 408-1080
E-mail: [email protected]
Web: www.cbpp.org
Center on Budget and Policy Priorities i
Acknowledgments
The Center on Budget and Policy Priorities
wishes to thank the following foundations which
provide support for all or part of the Center’s
work covered by this publication: Annie E.
Casey Foundation, Charles Revson Foundation,
Charles Stewart Mott Foundation, The Ford
Foundation, Foundation for Child Development
(http://www.fcd-us.org
), George Gund
Foundation, John D. and Catherine T.
MacArthur Foundation, Joyce Foundation,
Moriah Fund, Open Society Institute,
Rockefeller Foundation, and Stoneman Family
Foundation.
In addition, the authors thank Iris Lav for
reading and commenting on drafts of this report;
Arloc Sherman and Joseph Llobrera for their
data analysis for this report; Rick McHugh of
the National Employment Law Project for his
contributions to the unemployment insurance
sections; Julie Strawn and Amy-Ellen Duke of
the Center for Law and Social Policy for their
contributions to the section on education and
training; and Tina Marshall and Ann Brown for
their formatting and design work.
The authors also thank the contributors
below who wrote individual sections of the
report:
• Donna Cohen Ross, Outreach;
• Amy-Ellen Duke (Center for Law and
Social Policy), Education and Training;
• Shawn Fremstad, Earnings Supplements,
TANF Benefit Levels;
• Elizabeth McNichol, Unemployment
Insurance;
• Zoe Neuberger, Individual Development
Accounts;
• Edwin Park, Publicly Funded Health
Coverage;
• Sharon Parrott, Child Care Assistance,
Program Integration;
• Barbara Sard, Housing Assistance;
• Dottie Rosenbaum, Transitional Food
Stamps; and;
• Robert Zahradnik, EITC and other Low-
Income Tax Relief, State Minimum
Wages.
Center on Budget and Policy Priorities ii
Contents
Introduction....................................................................................................................................1
WAGE SUPPLEMENTS
Establish a State Earned Income Tax Credit................................................................................. 9
Provide Other Forms of Low-Income Tax Relief....................................................................... 11
Raise the State Minimum Wage Above the Federal Level......................................................... 15
Supplement the Earnings of Working Poor Families ................................................................. 17
ASSISTANCE WITH COSTS OF BASIC NEEDS AND WORK EXPENSES
Extend Publicly Funded Health Coverage to More Low-Income Families................................ 21
Provide Housing Assistance to Low-Income Families............................................................... 23
Provide Transitional Food Stamps to Families Leaving Welfare............................................... 25
Expand Access to Child Care Assistance ................................................................................... 27
CAREER ADVANCEMENT ASSISTANCE
Help Families Establish Individual Development Accounts...................................................... 33
Provide Post-Secondary Education and Training to Low-Income Parents................................. 35
INCOME SUPPORT FOR THE UNEMPLOYED
Make More Workers Eligible for Unemployment Insurance..................................................... 41
Extend Unemployment Insurance Benefits When the Labor Market Is Weak........................... 43
Raise TANF Benefit Amounts to More Adequate Levels.......................................................... 45
ACCESS TO SUPPORT SERVICES
Expand Outreach Efforts for Low-Income Programs................................................................. 49
Align Policies and Procedures in Benefit Programs................................................................... 53
Appendix: Resources for Additional Information ..................................................................... 57
Center on Budget and Policy Priorities 1
Introduction
For a large and growing number of
Americans, having a job is not enough to lift
them out of poverty. This report presents a
menu of practical policy options that states can
adopt to help working-poor families meet their
basic needs and improve their lives.
The number of people in working-poor
families has grown significantly in the last two
decades. In 2003, 13.1 million people, including
7.3 million children, lived in a working-poor
family. (In 2004 dollars, that means their
income was less than about $15,000 for a family
of three or $19,300 for a family of four.)
In nearly every state, a majority of poor
families in which the adults are not retired or
disabled have one or more workers. Table 1
provides data on the extent of work among poor
families with children in each state. Typically,
these adults work a substantial number of weeks
and hours in a given year. (Table 1 presents the
number of families in which either the head of
household or spouse worked a combined total of
more than 13 weeks during the year. Thirteen
weeks is the equivalent of one calendar quarter.)
In addition, working families make up a
growing share of all poor families. Between
1989 and 2003, the share of poor families that
included a worker rose from 54 percent to 65
percent.
The increase in the ranks of the working
poor reflects changes both in the economy and
in state and federal policies:
• The economy. From the late 1970s to the
mid-1990s, the real hourly wages of the
country’s lowest-income workers declined
or stagnated. The wages of low-income men
remain lower than they were 30 years ago.
The growth of the service sector and the loss
of manufacturing jobs resulted in lower-
paying jobs for workers with less than a
college education.
In the latter part of the 1990s, the country’s
long economic expansion led to high
employment rates and rising wages for low-
wage workers, which enabled some workers
to raise themselves out of the working-poor
category. However, the economic
expansion drew even more people into the
work force to take advantage of the growing
availability of jobs. Many of these new
workers had limited education and skills,
and the jobs they obtained paid low wages.
More recently, the slow economy since 2001
has worsened the problems of the working
poor, as the number of jobs has fallen and
real earnings have declined.
• Improved Work Supports: During the 1990s,
federal and state governments increased
supports to low-income working families.
This included two significant expansions of
the EITC (one in 1990 and one in 1993),
expansion in state and federal funding for
child care assistance, and the extension of
health insurance – through the Medicaid and
SCHIP programs – to children in low-
income working families. (Prior to the
1990s, children generally were only eligible
for Medicaid if their families were receiving
welfare.) By raising the take-home pay of
low-wage workers, helping families afford
the child care they needed in order to work,
and ensuring that children would not lose
health care coverage if the family left
welfare, these programs helped families get
and keep jobs.
• Welfare policies. State and federal welfare
policies also changed during the 1990s.
Cash assistance programs for poor families
placed a larger emphasis on helping families
find employment and on reducing the
number of families receiving cash welfare
benefits more generally.
The number of families receiving cash
welfare benefits fell significantly – dropping
by much more than the decline in poverty.
Nationally, the number of welfare cases
dropped by more than 57 percent from its
peak of 5 million in the early 1990s to 2.2
Center on Budget and Policy Priorities 2
million in 2000. Studies conducted during
this period showed that between half and
three-quarters of former welfare recipients
were employed shortly after they leave the
rolls. Most, however, earn low wages.
Despite the economic downturn in 2001, job
losses among single mothers, and rising
poverty, caseloads continued to edge down
nationally in 2002 and 2003. More recent
research has shown that a rising number of
former welfare recipients are not employed
and there is evidence of a growing number
of families that lack both work and welfare
benefits.
The jobs that currently are being created are
disproportionately concentrated in low-paying
industries, and the U.S. economy will continue
to depend on a large number of jobs that provide
low wages and poor benefits. For these reasons,
policies to assist low-income working families
will continue to be needed.
Such policies can provide valuable help not
only to parents, but also their children. More
than two-thirds of the nation’s poor children live
in families with one or more workers; these
children are poor not because their parents do
not work but rather because the jobs available to
their parents do not pay enough to allow them to
support their families and because stable year-
round work often is unavailable to low-income
parents. The large number of poor children in
this country is cause for concern because there is
strong evidence that growing up in poverty can
limit a child’s physical and cognitive
development.
In addition, assisting working-poor families
can help slow the long-term increase in income
inequality. Today, the gap between rich and
poor is wider than it has been in decades. Data
issued by the Congressional Budget Office show
that the income gap in 2000 was the widest it
has been since 1979 when CBO first prepared
this analysis. Other data included in a National
Bureau of Economic Research study indicate
that the income gap is wider than it has been
since the 1920s. Over the last two decades, the
incomes of the richest one percent have more
than doubled while the incomes of the poorest
fifth grew by only nine percent.
States have taken some steps to address the
needs of low-income working families. For
example, most states allow families to keep
more of their welfare benefits as they make the
transition from welfare to work than had been
allowed under the old AFDC program and some
states provide state tax credits or wage
supplements to bolster income. In addition, 13
states and the District of Columbia have
bolstered the incomes of many low-income
working families by setting the state’s minimum
wage above the prevailing federal minimum
wage. Many states also have worked to broaden
access to services vital to low-income working
families, such as child care and health insurance.
Yet much more can, and should, be done.
More states could implement programs that have
proven successful elsewhere; existing programs
could be expanded; and the cutbacks that many
states adopted during the recent state fiscal crisis
could be restored.
The Structure of This Report
This report outlines a number of policy
options that states could adopt to assist working-
poor families. The rationale for each option is
followed by a brief discussion of key design
issues and examples of states that have adopted
these policies.
This is not meant to be an exhaustive list of
state options to assist the working poor. Nor
would every proposal be suitable for every state.
Instead, this report shows the range of measures
that are open to states.
Many states will be hard pressed to find
resources for these (or any other) new initiatives.
Despite the apparent easing of the state fiscal
crisis, state revenues and spending remain at
their lowest levels as a share of the economy in
years. States also must replenish reserve funds
that were depleted during the fiscal crisis and
restore spending cuts imposed to close budget
gaps. In addition, numerous states are burdened
by outdated tax structures, which slow state
Center on Budget and Policy Priorities 3
Number of Number Percent Number of Number of
poor families working more working more people in working children in working
with children* than 13 weeks than 13 weeks Low High poor families poor families
United States
4,813,000 3,209,000 67% 66% 67% 12,663,000 7,295,000
Alabama
103,000 68,000 66% 61% 71% 245,000 134,000
Alaska
7,000 4,000 58% 38% 77% 16,000 9,000
Arizona
106,000 73,000 69% 64% 73% 322,000 191,000
Arkansas
54,000 36,000 68% 61% 75% 136,000 77,000
California
605,000 395,000 65% 63% 67% 1,781,000 1,007,000
Colorado
60,000 44,000 74% 68% 80% 167,000 90,000
Connecticut
30,000 19,000 62% 53% 71% 71,000 44,000
Delaware
9,000 5,000 55% 38% 72% 19,000 11,000
District of Columbia
12,000 7,000 55% 40% 69% 22,000 13,000
Florida
275,000 185,000 67% 64% 70% 728,000 426,000
Georgia
146,000 100,000 69% 65% 73% 376,000 221,000
Hawaii
16,000 10,000 62% 49% 74% 42,000 24,000
Idaho
24,000 20,000 82% 74% 90% 78,000 43,000
Illinois
201,000 123,000 61% 57% 65% 487,000 282,000
Indiana
90,000 62,000 68% 63% 73% 219,000 136,000
Iowa
41,000 32,000 79% 72% 85% 110,000 64,000
Kansas
40,000 30,000 76% 68% 83% 124,000 72,000
Kentucky
83,000 54,000 65% 60% 71% 189,000 101,000
Louisiana
129,000 87,000 68% 63% 72% 332,000 191,000
Maine
20,000 13,000 64% 53% 75% 39,000 21,000
Maryland
59,000 39,000 66% 60% 73% 147,000 88,000
Massachusetts
74,000 44,000 60% 54% 66% 152,000 91,000
Michigan
145,000 92,000 64% 60% 68% 345,000 202,000
Minnesota
53,000 35,000 66% 59% 73% 136,000 82,000
Mississippi
74,000 51,000 69% 63% 74% 195,000 114,000
Missouri
86,000 63,000 74% 69% 79% 232,000 136,000
Montana
18,000 15,000 84% 75% 93% 57,000 31,000
Nebraska
26,000 20,000 77% 68% 85% 68,000 40,000
Nevada
37,000 25,000 67% 59% 75% 108,000 61,000
New Hampshire
11,000 7,000 66% 51% 81% 23,000 13,000
New Jersey
88,000 55,000 63% 57% 68% 212,000 127,000
New Mexico
51,000 40,000 78% 72% 84% 156,000 86,000
New York
328,000 189,000 58% 55% 60% 748,000 429,000
North Carolina
175,000 117,000 67% 63% 70% 423,000 234,000
North Dakota
9,000 5,000 62% 44% 79% 19,000 11,000
Ohio
193,000 127,000 66% 62% 69% 453,000 275,000
Oklahoma
71,000 44,000 62% 56% 68% 182,000 106,000
Oregon
61,000 44,000 73% 67% 79% 157,000 88,000
Pennsylvania
154,000 101,000 65% 61% 69% 379,000 228,000
Rhode Island
15,000 7,000 44% 31% 58% 22,000 13,000
South Carolina
83,000 56,000 68% 62% 73% 202,000 117,000
South Dakota
11,000 9,000 76% 62% 89% 32,000 19,000
Tennessee
105,000 70,000 67% 62% 72% 260,000 150,000
Texas
501,000 355,000 71% 69% 73% 1,557,000 875,000
Utah
36,000 27,000 75% 68% 83% 119,000 69,000
Vermont
5,000 4,000 68% 47% 89% 13,000 7,000
Virginia
93,000 62,000 67% 62% 72% 232,000 138,000
Washington
89,000 58,000 65% 60% 70% 226,000 129,000
West Virginia
39,000 30,000 76% 69% 83% 117,000 66,000
Wisconsin
67,000 46,000 69% 63% 75% 169,000 103,000
Wyoming
8,000 6,000 78% 63% 94% 20,000 12,000
* Families in which at least one parent is able to work (under 65 and not both reporting a disability and out of the labor force).
Note: American Community Survey data from 2002 reflect incomes received in 2001 and 2002.
Source: CBPP tabulations of Census Bureau's American Community Survey from 2002.
90 Percent
Confidence Interval**
TABLE 1: Poor Families with Children with Parents Working More Than 13 Weeks, 2002
** Because the percents shown are derived from a survey of a sample of families, they are estimates. The confidence interval shows the precision of that estimate.
There is a 90 percent chance that the actual percent would fall into the range shown if all families were surveyed.
Center on Budget and Policy Priorities 4
revenue growth over the long term. However,
the measures outlined in this report have only
modest costs, and many can be paid for at least
partially with federal funds. Funding issues are
examined at the end of each policy brief.
These options are grouped into the following
areas:
• Wage supplements. A number of states
have enacted policies to boost the take-home
pay of workers with low-wage jobs. These
include state earned income tax credits and
other forms of low-income tax relief, state
minimum wages that are higher than the
federal minimum wage, and earnings
supplements for families making the
transition from welfare to work.
• Helping low-wage workers meet basic
needs and offset work expenses.
Recognizing the challenges that low-wage
workers face in meeting their families’ basic
needs, a number of states provide publicly
funded health coverage and state-funded
housing assistance, as well as transitional
food stamp benefits for families moving
from public assistance to work. In addition,
states often provide child care assistance for
low-income parents, and some states provide
transportation assistance.
• Assistance with career advancement.
When people are able to move up the
economic ladder, both they and the economy
as a whole benefit. Accordingly, states have
created programs to expand workers’ access
to education and training. States also have
promoted Individual Development
Accounts, through which low-income
families can build assets for high-return
investments such as college tuition.
• Income support for the unemployed. As
the safety net has begun to focus more on
helping families find and hold jobs and less
on direct cash assistance, addressing the
needs of the temporarily unemployed has
become increasingly critical. A number of
states have modernized their unemployment
insurance systems to take into account the
changing nature of work in this country,
particularly the growing number of low-
wage workers. States have also increased
benefit levels in the Temporary Assistance
for Needy Families (TANF) program and
improved outreach efforts to make TANF a
better safety net for low-income workers
who are between jobs.
• Improve access to support services. The
rules and procedures that govern programs
such as Medicaid, children’s health
insurance, TANF, and child care are often
complex and uncoordinated. This makes it
difficult for families that are eligible for
multiple programs to receive all the benefits
to which they are entitled. To address this
problem, states are beginning to streamline
and integrate their program rules. States
also are conducting outreach to inform
eligible populations about the availability of
important supports such as the Earned
Income Tax Credit and publicly funded
health insurance.
Relevant Issues Not Addressed in this Report
This report focuses on low-wage workers
with children. However, childless adults with
less than a college education are also finding it
increasingly difficult to make ends meet.
Childless adults are eligible for very little
government assistance: they do not qualify for
federal cash assistance unless they are elderly or
disabled, most do not qualify for Medicaid
unless they are elderly, and food stamp
eligibility for unemployed, childless adults aged
18 through 49 is severely limited.
States could play an important role in
closing this gap in the safety net. For example,
they could establish programs that provide
income support or health insurance to childless
adults or resist further rollbacks in programs that
are specifically targeted to this population.
More information on features of state safety nets
that affect childless adults is available from the
Center.
This report also does not specifically address
immigrant families, who often face particularly
Center on Budget and Policy Priorities 5
high barriers to finding good-paying jobs with
benefits. While they, like long-time citizens,
will benefit from the policies outlined in this
report, states also can take steps to address the
specific difficulties of immigrant workers, such
as limited proficiency in English and low skill
levels. Moreover, states can ensure that support
programs such as food stamps, Medicaid and
SCHIP, and TANF are available to immigrant
families that need them. More information on
these policies can be found in the papers on the
Center’s website.
Finally, with the important exception of
state minimum wages, the report does not
address state policies that could improve the
quality of jobs in the United States. The fact
that a large number of jobs pay low wages and
provide little or no benefits results from factors
that are mostly out of the control of states, such
as globalization, the shift to a service economy,
and declining unionization. However, states can
at least ensure that their policies do not
exacerbate the situation. For example, many
states that offer economic development subsidies
do not distinguish between companies that pay
low wages and offer no health benefits and those
that bring better jobs. In addition, state policies
that serve to restrict the ability of unions to
organize effectively may encourage low wages.
Two organizations that can provide more
information on these areas are the Economic
Policy Institute and Good Jobs First.
Wage Supplements
Center on Budget and Policy Priorities 9
Establish a State Earned Income Tax
Credit
Proposal
To reduce the tax burdens and supplement
the earnings of low-income workers by creating
a refundable state earned income tax credit
(EITC).
Rationale
Through the federal EITC, the federal
government provides some $37 billion in tax
relief annually to more than 21 million working
families and individuals, almost all of them
families with children. Studies show that the
EITC can be an effective inducement to work
because at very low income levels, the value of a
credit rises as earnings rise. (The credit phases
out at higher income levels.)
Most EITC benefits go to families with
children below the poverty line. The EITC lifts
millions of these families out of poverty each
year.
State EITCs further the goals of the federal
EITC in several ways. First, they reduce
poverty among working families. Full-time,
year-round work, even at wages above the
minimum wage, is not always sufficient to bring
a family above the poverty line even after the
federal EITC is taken into account. Thus,
millions of working families each year remain
poor despite receiving the federal EITC.
Supplementing it with a state EITC can reduce
or eliminate the poverty gap for these families.
Second, state EITCs that are “refundable”
— meaning they provide a refund check to
families whose credit exceeds their income tax
liability — support welfare reform by boosting
the incomes of families that move from welfare
to work.
Also, state EITCs help relieve state and local
tax burdens on poor families. Most states rely
heavily on sales, excise, and property taxes,
which are regressive (that is, they absorb a larger
proportion of the incomes of lower-income
households than of higher-income households).
In addition, nearly half of the states impose
income taxes on families with incomes below
the poverty line. State EITCs can lessen the
regressivity of state tax systems and help prevent
states from taxing families deeper into poverty.
Design Options
All existing state EITCs except Minnesota’s
piggy-back on the federal EITC, using federal
eligibility rules and expressing the state credit as
a specified percentage of the federal credit. This
method is relatively easy for a state to
administer. It also is easy for families claiming
the credit: to determine its state EITC benefit, a
family need only multiply its federal EITC
amount by the state EITC percentage.
Below are the major issues states should
consider in designing an EITC.
• Refundability. Under a refundable state
EITC, a family receives a refund check if
the size of its EITC exceeds its state income
tax bill. For example, if a taxpayer owes
$80 in state income taxes and qualifies for a
$200 state EITC, the first $80 of the EITC
offsets the income tax and the remaining
$120 goes to the taxpayer as a refund check.
If the credit is non-refundable, the family’s
income tax liability is eliminated but the
remaining $120 of the credit is forfeited.
A refundable EITC thus can serve a wider
variety of purposes than a non-refundable
credit. While a non-refundable credit can
only be used to provide income tax relief, a
refundable EITC can boost the incomes of
low-income working families, including
those making the transition from welfare to
work, and also offset their sales and excise
taxes. Refundable EITCs are especially
important in states that already exempt most
or all poor families from the income tax,
since poor households in these states would
gain little or nothing from a non-refundable
EITC.
Center on Budget and Policy Priorities 10
• Size of the credit. The percentage of the
federal EITC at which the state credit is set
should be based on the level of state income
tax relief desired and (in the case of a
refundable EITC) on the size of the desired
income boost for families that would qualify
for a refund. The size of existing EITCs
varies from state to state, but many are set at
15 percent to 20 percent of the federal
credit.
• Adjusting the credit for family size.
Although the federal EITC provides higher
benefits to families with two or more
children than families with one child, it does
not fully compensate for the higher poverty
line for larger families. Nor does it
distinguish between families with two
children and families with three or more
children. Adjusting a state EITC for family
size beyond the federal family-size
adjustment — as Wisconsin has done with
its EITC — thus can help larger families
afford basic expenses.
• Including workers without a qualifying
child. As part of a 1993 expansion in the
federal EITC, low-income workers between
the ages of 25 and 64 who do not have a
qualifying child living with them became
eligible for the EITC for the first time.
States may decide to make workers without
qualifying children eligible for the state
EITC as well. If they do, the credit these
workers would receive is very small because
the federal credit for these workers is
modest. For example, in a state with an
EITC set at 15 percent of the federal credit,
the maximum state credit for a worker
without a qualifying child is $53. Some of
these workers may find a state EITC not
worth the effort required to claim it,
particularly if they owe no state income tax
and are not otherwise required to file a state
tax return.
On the other hand, the cost of including
workers without qualifying children in a
state EITC is likely to be small, and some
people are helped by it.
Funding
State EITCs have been financed in a variety
of ways: from general fund dollars, from
additional revenue generated by tax increases,
and from funds freed up by forgoing other, less-
well-targeted tax cuts.
States also may use federal TANF funds to
fund the refundable portion of a state EITC. In
most cases, this portion is likely to equal at least
one-third and sometimes as much as nine-tenths
of the EITC’s total cost. State EITCs financed
in this way are not limited to families that are
participating in other TANF-funded programs;
similarly, most federal rules that apply to
recipients of TANF cash welfare (such as time
limits) do not apply to EITC recipients.
Some states may choose not to use federal
funds for their refundable EITCs. A state may
prefer to reserve these funds for other forms of
assistance, for example, or may regard the EITC
as tax relief and thus choose to finance it from
the same general revenue sources as other forms
of tax relief.
State funds that are used for the refundable
portion of a state EITC count toward meeting
the state’s maintenance-of-effort (MOE)
requirement under TANF.
States Using the Option
Seventeen states (Colorado, Illinois,
Indiana, Iowa, Kansas, Maine, Maryland,
Massachusetts, Minnesota, New Jersey, New
York, Oklahoma, Oregon, Rhode Island,
Vermont, Virginia, and Wisconsin) plus the
District of Columbia have established EITCs.
In the states listed in italics, the EITC is
refundable.
Center on Budget and Policy Priorities 11
Provide Other Forms of Low-Income
Tax Relief
Proposal
To reduce the burden of state and local
income, sales, and property taxes on low-income
families.
Rationale
State and local tax systems place a
disproportionately high burden on low-income
families. In 2002, the bottom 20 percent of
taxpayers paid 11.4 percent of their income in
state and local taxes, while the top 1 percent of
taxpayers paid only 7.3 percent.
Low-income families face high tax burdens
largely because states and localities rely heavily
on sales and excise taxes to finance government
services. About one-third (35 percent) of state
and local tax revenue is derived from general
sales taxes and excise taxes on items such as
gasoline and tobacco.
These consumption taxes impose a
disproportionately high burden on lower-income
families, who must spend a larger share of their
income on items subject to tax in order to meet
basic needs. In 2002, sales and excise taxes
alone took up 7.8 percent of the income of the
bottom 20 percent of taxpayers.
States and localities derive another 29
percent of their revenue from property taxes.
Property taxes too are somewhat regressive, since
lower-income households spend a larger share of
their income on housing than higher-income
households do.
Lastly, about one-quarter of state and local
revenue comes from the personal income tax.
The income tax is the most progressive element
of the state and local tax system. However, nine
states do not have an income tax, and in 18 of the
42 states that do have an income tax, two-parent
families of four with incomes below the federal
poverty line continue to owe income tax.
Design Options
States can make their tax systems less
regressive by providing tax relief to low-income
families. There are several ways to accomplish
this, depending on the particular tax that the state
wishes to modify.
Income Tax
Targeted income tax relief for low-income
families is generally provided through credits and
no-tax floors.
• Credits. A tax credit (a fixed amount
subtracted directly from an individual’s tax
liability) can be an efficient way of reducing
low-income families’ tax burdens. A
“refundable” tax credit — that is, one that
provides a refund check to the taxpayer if the
value of the credit exceeds the amount of tax
owed — can offset the burden of other state
and local taxes and supplement the wages of
low-income families.
A number of states have created earned
income tax credits modeled on the federal
EITC to help low-income working families
(see page 7). Other states have credits that
are simply a flat amount per dependent or
household member. Still other states have
credits that equal a percentage of the
household’s tax liability, with the percentage
decreasing as household income rises.
In addition, some states have low-income
credits that are designed to shield taxpayers
below a certain income level (such as the
poverty line) from paying income tax.
• Child and dependent care tax provisions.
Some states provide tax credits or deductions
to a specific subset of low-income families,
such as those with child care expenses. The
amount of these credits or deductions is
generally tied to the federal child and
dependent care credit.
While such provisions help low-wage
families meet the high cost of quality child
care, they have serious shortcomings. For
Center on Budget and Policy Priorities 12
example, many low-income families cannot
afford to incur child care expenses and wait
for reimbursement after filing their taxes.
Also, the value of these credits or deductions
is often well below the cost of child care.
Nonetheless, state child and dependent care
credits can be a useful part of a
comprehensive approach to low-income tax
relief and child care assistance that includes
more broad-based tax relief and child care
subsidies. (See page 25 for more on state
child care policies.)
• No-tax floors. Some states have established
a “no-tax floor,” or an income level below
which no taxes are owed. No-tax floor
provisions supersede all other provisions of
the income tax, so a family that would
otherwise owe income taxes but whose
income falls below the floor would face no
income tax liability.
One area of concern in the design of no-tax
floors is the impact on taxpayers with
incomes just above the floor. A single
additional dollar of income above the amount
of the no-tax floor can trigger a significant
amount of tax. To prevent this from
happening, most states that use a no-tax floor
phase in their income tax over a range of
income above the floor.
Sales Tax
States can provide low-income families with
relief from state sales taxes through credits or
rebates. Some of the design issues to consider
include:
• Targeting. One of the potential benefits of
a sales tax credit or rebate is that it is an
efficient way to provide tax relief to those
who need it most. In order to keep sales tax
credits cost effective, states typically target
them on poor and near-poor families.
• Family size adjustment. Larger families
could receive larger credits, since they tend
to pay more in sales taxes.
• Cost versus adequacy. The overall size of
the sales tax credit or rebate will depend, in
part, on how much the state is willing to
spend. Sales tax credits are typically
designed as a fixed dollar amount per family
member (current credits range from $5 to
more than $70). However, these amounts are
typically inadequate to offset sales taxes
fully, since the poorest 20 percent of families
pay an average of $725 a year in state and
local sales and excise taxes.
• Inflation adjustment. Credits or rebates
will not keep pace with the sales tax burdens
they are intended to offset unless they are
automatically adjusted for inflation. Both the
amount of the credit per family member and
the income eligibility limit should be
adjusted annually.
Property Tax
The primary way states provide targeted
property tax relief is through “circuit-breakers”
designed to prevent low-income and elderly
taxpayers from being “overloaded” by their
property tax bill. Typically, the state establishes
a maximum percentage of income that a family
that qualifies for the circuit-breaker can be
expected to pay in property taxes; if this limit is
exceeded, the state provides a credit or a rebate.
Some of the design issues to consider when
developing a property tax credit or rebate
program include:
• Covering renters as well as homeowners.
It is generally accepted that owners of rental
real estate pass some of their property tax
burden on to renters in the form of higher
rents. For this reason, 26 states and the
District of Columbia have property tax relief
programs that provide relief to renters and
homeowners alike. Nine states have
programs only for homeowners, while
Oregon offers relief only to renters.
If states choose to provide property tax relief
to renters, the state must make an assumption
about how much of the rent payment
represents property taxes. This “property tax
Center on Budget and Policy Priorities 13
rent equivalent” ranges from 6 percent in
New Mexico to 35 percent in Connecticut.
• Elderly versus non-elderly. Most circuit-
breaker programs are targeted to elderly or
disabled persons; in fact, 24 of the 36 states
with circuit-breakers provide relief only to
elderly taxpayers. This reflects the fact that
low-income persons who are elderly are more
likely than other low-income persons to live
on fixed incomes and have trouble paying
property taxes when their home assessments
rise.
Still, low-income non-elderly taxpayers also
can face high property tax burdens.
Including the non-elderly in an income-
targeted circuit-breaker program ensures that
property tax relief goes to the households that
need it most, regardless of the age of the
homeowner.
• Income eligibility ceiling. Most states set a
maximum income above which households
do not qualify for the circuit-breaker
program. Where the state sets this income
limit will largely determine both the targeting
and the cost of the program. Typically, the
limit is about $25,000 for a married couple.
Wyoming’s income limit is based in part on
the federal poverty line. This approach has
the advantage of automatically compensating
for family size and for inflation.
• Maximum benefit. Most states cap the
amount of property tax relief provided by a
circuit-breaker, ranging from a couple
hundred dollars to more than $1,000. States
that target their circuit-breakers on a
narrower income range (and thus assist fewer
households) may be able to afford a more
generous maximum benefit.
• Calculation of the benefit. Most states with
circuit-breakers consider both the
household’s income and the percentage of
income it is paying in property taxes when
calculating the amount of benefits the circuit-
breaker provides.
• Adjusting for inflation. Like sales tax
credits, property tax credits or rebates will
not keep up with the property tax burdens
they are intended to offset if they are not
indexed for inflation. Both the income
eligibility ceiling and the benefit amounts
should be adjusted for inflation.
Other Design Factors to Consider
Regardless of the form of low-income tax
relief a state decides to provide, there are other
issues it should consider:
• The importance of outreach. In order to be
successful, any low-income tax relief
program must be accompanied by an
aggressive outreach campaign that publicizes
the program and explains how eligible
taxpayers can claim benefits.
• Phase-out ranges. Many tax credits
gradually decline in value as taxpayers’
incomes rise. States should pay attention to
the phase-out range when designing credits
for taxpayers with incomes just above the
poverty line, since the interaction of the
credit and the phase-out of benefit programs
such as child care assistance could result in
high marginal “tax” rates for low-income
families.
• How to administer the program. Property
or sales tax relief can be administered
through the income tax (using a credit) or
through a separate rebate program. The
former method is generally preferable
because the administrative infrastructure is
already in place. However, there are several
reasons why a state may choose to set up a
separate rebate program outside the tax
system:
9 The state does not have an income tax.
As indicated earlier, nine states do not
have an income tax and therefore cannot
administer tax relief through the income
tax.
Center on Budget and Policy Priorities 14
9 Many eligible households do not file
income taxes. In states with income
taxes that exempt families with below-
poverty incomes, many families who
would be eligible for the property or
sales tax credit would not be required to
file state income tax returns, and thus
would not receive the credit. The state
needs to weigh the administrative
advantage of using the income tax
against the danger that many eligible
people will be shut out of the credit.
9 The state uses a different definition of
income in its tax-relief program. Some
states may prefer to administer their low-
income tax relief programs outside of
their income tax because they use a
different definition of income in their
tax-relief program than in their income
tax system generally.
9 The state wants to provide relief in forms
other than a cash rebate. For example,
some states provide a direct reduction on
the property tax bill for homeowners
whose applications have been approved.
Others provide certificates that
homeowners can remit when paying their
property taxes.
Funding
All of these various low-income tax relief
provisions have been primarily financed with
state general fund dollars.
States Using the Option
A number of states have adopted one or more
provisions designed to reduce the burden of state
and local income, sales, and property taxes on
low-income families. The design of these
provisions varies widely.
In addition to the earned income tax credits
described in the previous section of this report,
about a dozen states have adopted other credits
that reduce income tax liability for low-income
taxpayers. In some states, such as Georgia and
Hawaii, these credits are simply a flat amount
per dependent or household member. Other
states, such as Kentucky, have credits that equal
a percentage of tax liability, with the percentage
based on income. New Mexico’s Low-Income
Comprehensive Tax Rebate incorporates both
income and family size with a refundable credit
available to families with income below $22,000
that can equal up to $240 for a family of four.
At least eight states — Iowa, Louisiana,
Massachusetts, Nebraska, New Jersey,
Oklahoma, Virginia, and West Virginia — use
a no-tax floor in their income taxes.
More than half the states plus the District of
Columbia provide income tax credits or
deductions for child care expenses.
State sales tax credits are most often offered
in states that levy a sales tax on food. As of
2003, five states — Idaho, Kansas, Oklahoma,
South Dakota, and Wyoming — offer credits or
rebates to offset some of the taxes paid on food.
These usually are set at a flat amount per family
member.
Property tax circuit breakers are offered
in 36 states plus the District of Columbia.
Center on Budget and Policy Priorities 15
Raise the State Minimum Wage Above
the Federal Level
Proposal
To compensate for the declining real value of
the federal minimum wage by setting the state
minimum wage at a higher level.
Rationale
The federal minimum wage provides an
important safeguard for low-wage workers by
guaranteeing that wages cannot fall below a
specified level. However, the current federal
minimum wage has failed to increase in step with
the rising cost of living. Recognizing this, a
number of states have adopted a higher minimum
wage for their state.
Since the federal minimum wage is not
automatically adjusted for inflation, its real value
declines each year if Congress takes no action.
The minimum wage is currently set at $5.15 an
hour and has not risen since 1997. As a result, its
value after adjusting for inflation is lower than in
any year since 1956 except for 1998-1999.
During the 1960s and 1970s, a full-time
minimum wage worker employed throughout the
year typically earned enough to lift a family of
three out of poverty. Now, full-time minimum
wage earnings equal only 73 percent of the
poverty line for a family of three. The minimum
wage would need to be $6.39 an hour, or more
than $1 per hour above its current level, to match
the purchasing power it averaged in the 1970s.
Any future increases in the federal minimum
wage are unlikely to compensate fully for its
erosion over the past few decades. Thus,
increases in state minimum wages are likely to be
the only way to offset the decline in the federal
minimum wage. Since 1981, a number of states
have periodically raised their minimum wages for
this purpose.
A state minimum wage set at above the
federal minimum wage level would help reverse
or moderate the decline in wages for workers at
the bottom of the pay scale, help more working
families escape poverty, and enable more parents
who are moving from welfare to work to support
their families through work. Each 25 cent
increase in the minimum wage would boost the
income of a full-time, minimum-wage worker by
$480 per year, after payroll taxes are deducted.
One of the principal arguments against
raising the minimum wage is that it would price
many workers out of the job market. Some also
argue that an increase in the state minimum wage
would result in a loss of jobs to neighboring
states with lower minimum wages.
While these concerns must be considered, the
weight of recent research findings suggests that a
moderate increase in a state’s minimum wage
over the current federal level would boost the
incomes of low-wage workers without harming
employment. Studies also suggest that when the
minimum wage is at a low level — as it currently
is — moderate increases are likely to have
negligible negative impacts on employment.
It also should be noted that contrary to the
popular stereotype, the majority of minimum-
wage workers are adults, not teenagers. Most
minimum-wage workers are in low-income
families and provide a significant share of the
family=s earnings. The decline in the value of the
minimum wage has made it harder for these
workers to support their families.
Indeed, the decline in the minimum wage has
contributed to the increase in the number of
working families who are poor and to the
widening inequality of wages. A state can slow
these negative trends by setting its minimum
wage above the federal level.
Design Options
While raising the state minimum wage above
the federal level is a relatively simple matter, a
few design issues must be addressed:
• Setting the level of the wage. The higher
the wage, the greater the benefit to minimum-
wage workers but the greater the cost to their
employers. At present, most states with
higher minimum wages have set them in the
Center on Budget and Policy Priorities 16
range of $6.15 to $7.16, or $1 to $2 above the
current federal level. In the District of
Columbia, the minimum wage is set at $1
above whatever the current federal minimum
wage is.
• Implementation. A state can choose either
to increase the minimum wage all at once or
to phase in the increase over several years.
• Indexing. As noted above, the fact that the
federal minimum wage is not indexed to
inflation is a prime reason why its real value
has fallen over time. A state can preserve the
real value of its minimum wage by enacting a
provision that adjusts the level of the wage
each year to reflect inflation.
A related policy development designed to
assist low-wage workers is the enactment of
living wage ordinances. These laws typically
require private contractors performing services
for a city or other local government or receiving
economic development incentives to pay their
workers a minimum hourly wage higher than the
minimum wage. These ordinances affect fewer
workers than a state minimum wage.
Funding
The costs to states of increasing the state
minimum wage are limited and consist primarily
of notifying businesses of the change and raising
the salaries of any minimum-wage state workers.
These nominal costs are typically covered by
state general funds.
States Using the Option
As of September 2004, the minimum wages
in 12 states (Alaska, California, Connecticut,
Delaware, Hawaii, Illinois, Maine,
Massachusetts, Oregon, Rhode Island,
Vermont, and Washington) and the District of
Columbia were higher than the federal level.
Those in Oregon and Washington are adjusted
annually for inflation.
Two more states will establish minimum
wages higher than the federal in 2005 and a third
is moving towards a higher minimum wage.
New York State’s minimum wage will increase
to $6.00 on January 1, 2005 and will rise to $7.15
by 2007. In addition, in November 2004, voters
in two states — Florida and Nevada — approved
ballot measures that would set the state minimum
wage to $6.15. The Florida provision will take
effect in 2005 while the Nevada one requires
approval by a second vote in 2006.
As of November 2002, living wage
ordinances have been adopted in over 70
localities, according to a survey by the Economic
Policy Institute.
Center on Budget and Policy Priorities 17
Supplement the Earnings of Working
Poor Families
Proposal
To provide earnings supplements to adults
who work but earn too little to meet their
family’s basic needs.
Rationale
As noted in the introduction to this report,
most poor families in the United States are
working families. For these families, having a
job simply is not enough to lift them out of
poverty. Earnings supplements can help lift
working families out of poverty and offset some
of the costs of going to work. For this reason,
earnings supplements are an increasingly
important part of a policy agenda to “make work
pay” for low-wage workers.
For example, the federal government reduces
the tax burdens and supplements the income of
low-wage workers through the Earned Income
Tax Credit. States too have extended earnings
supplements to low-income families, though to a
lesser extent. Most states have made progress in
fixing the rules in means-tested public benefit
programs that penalize working families and, as
noted earlier in this report, seventeen states have
created their own EITCs. (See pages 7-8.)
Recent research suggests that earnings
supplements can help low-income working
families improve their lives. Studies have shown,
for example, that both earnings supplements
provided as part of welfare-to-work programs
and the EITC contributed to the increase in
employment among low-income single mothers
in the 1990s.
Rigorous evaluations that compared the
effectiveness of welfare-to-work programs that
provide earnings supplements (such as
Minnesota’s MFIP program) to those that do not
have found that only the programs with earnings
supplements reduced poverty among participants
and raised their overall income.
In welfare-to-work programs without
supplements, the increased earnings that
participants enjoy tend to be offset by reductions
in government benefits. For example, an HHS-
sponsored study of Wisconsin’s much-touted W-
2 program, which does not provide earnings
supplements, found that families who left the
program experienced a net decline in income
even though their earnings increased.
Evaluations also have found that programs
with earnings supplements had significant
positive impacts on family and child well-being
that did not appear in the other programs,
including increased marriage rates, reductions in
domestic violence, and improvements in
children’s school performance
Nevertheless, barriers to an effective strategy
of earnings supplements still exist. For example,
in most states, poor parents who go to work lose
all cash aid before their earnings are sufficient to
meet their family’s basic needs.
All states cut off cash assistance before a
family’s earnings reach the poverty line, and
most states cut off assistance before a family’s
earnings reach 75 percent of the poverty line.
Many states place other limitations on
supplements that limit their effectiveness.
An important sign of the limitations of
current policies is that both national and state
studies have found that families who leave
welfare have low earnings and face significant
problems meeting their basic needs.
Design Options
There are several ways states can improve
the well-being of families moving from welfare
to work. The options below fall into two
categories: providing work incentives through the
welfare system by disregarding a portion of a
family’s earnings, and providing supports for
low-income workers outside the cash welfare
system through state EITC (see page 7) or other
means.
• Allow families to retain part of their cash
assistance until their earnings reach the
poverty line. This can be done by increasing
Center on Budget and Policy Priorities 18
the amount of earnings that are “disregarded”
— not counted — in determining the amount
of a family’s grant.
• Eliminate policies that limit earnings
supplements to the first few months of
employment. Eleven states provide a
generous supplement for the first few months
of work, but quickly impose more restrictive
earnings rules. Limiting supplements in this
way does little to increase income or promote
improvements in children’s well-being.
• “Stop the clock” for families receiving
supplements. In most states, assistance
received by a working family counts against
the family’s TANF time limit, so some such
families may opt to leave assistance while
working in order to preserve their eligibility
for TANF benefits later, in case they lose
their job or face some other crisis. Several
states address this issue by “stopping the
clock” for working families.
• Ensure that two-parent and immigrant
families are eligible for earnings
supplements. Seventeen states do not allow
two-parent families to participate in TANF
on the same basis as one-parent families.
Immigrant families too are subject to more
restrictive eligibility rules in most states.
States may not use federal TANF funds to
provide benefits to newly arrived
immigrants, but they may use their own
maintenance-of-effort (MOE) funds for this
purpose. More than 20 states use state MOE
to ensure that legal immigrants have the same
access to TANF benefits as citizens.
• Provide work expense allowances to
working families. A work expense
allowance offsets some work-related costs by
providing a monthly cash payment to low-
income working families. The most practical
approach to such an allowance would be to
provide a flat amount based on an estimate of
the work expenses incurred by typical low-
income families.
States might choose to provide these
allowances to all needy working families and
phase them out as income approaches a
specified level. Alternatively, they might opt
to provide allowances for a limited time for
certain groups of families, such as those that
have recently left welfare.
Because time limits and other TANF rules
that apply to cash assistance do not apply to
families receiving a work allowance, states
may choose to
allow working families that
remain eligible only for modest benefits to
leave the TANF program and begin receiving
work expense allowances instead.
• Provide work bonuses to working families.
A work bonus is a monthly or semi-annual
cash payment provided to a low-income
working family to encourage continued
employment. Like a work expense
allowance, a work bonus is a fixed cash
payment that does not fluctuate in response
to changes in income or expenses. Bonuses
could be provided to families moving from
welfare to work or to families participating in
employment and training programs or other
workforce development programs.
Funding
Earning supplements can be financed with
federal TANF revenues or state general revenues.
Increased state investment in this area would be
appropriate. States today generally spend
significantly less than 75 percent of what they
spent in the early 1990s on welfare programs
(after inflation is taken into account).
States Using the Options
Delaware, Illinois, Maryland, and Rhode
Island stop the clock for some or all working
parents receiving TANF. Louisiana disregards
all earnings for the first six months of
employment and stops the clock during this six-
month period.
Assistance with Costs of Basic Needs
And Work Expenses
Center on Budget and Policy Priorities 21
Extend Publicly Funded Health
Coverage to More Low-Income
Families
Proposal
To broaden Medicaid or SCHIP eligibility
incrementally to assist more low-income families
and individuals.
Rationale
Several factors, most notably the rising cost
of health care, are leading to an increase in the
number of uninsured Americans, especially
among low-income working families.
Employer-based coverage eroded during the
recent economic downturn as families lost their
jobs and health insurance. Over the same time
period, employers experienced a return of
double-digit annual increases in the cost of health
insurance premiums. As a result, some firms can
no longer afford to offer health coverage. Others
are reducing coverage (such as by not covering
dependents) or are increasing the amount that
workers must pay for coverage, which may make
insurance unaffordable for low-income workers.
Public programs like Medicaid and the State
Children’s Health Insurance Program (SCHIP)
have served a vital countercyclical role over the
last several years. Without Medicaid and SCHIP
offsetting the losses in employer-based coverage
— particularly for children — the increases in the
number of uninsured would have been far
greater.
However, while most children with incomes
below 200 percent of the poverty line are eligible
for coverage through public programs, publicly
funded coverage for their parents is much more
limited. In a typical state, as of April 2003, a
working parent earning about 71 percent of the
federal poverty line (about $11,100 annually for a
family of three) is ineligible for public coverage.
Only 16 states cover parents up to 100 percent of
the poverty line. Moreover, some states have
subsequently reduced Medicaid coverage for
parents as a result of budget problems.
In addition, a childless adult who is not
disabled or elderly is generally not eligible for
Medicaid at any income.
Design Options
Fiscal constraints may prevent states from
undertaking major expansions in coverage for
low-income adults in the near future.
Nevertheless, incremental expansions may be
feasible as state budgets continue to recover,
particularly if they are well-targeted and
primarily federally funded. States have two
options:
• Eliminate or relax Medicaid asset tests for
families. Although the vast majority of
states have eliminated the asset test in
determining children’s eligibility for
Medicaid, fewer than half of the states have
waived the asset test for parents.
Eliminating or easing the asset test will
ensure that families with low incomes are not
made ineligible for Medicaid simply because
they own modest assets such as small savings
accounts. It also may make Medicaid easier
and less expensive for states to administer.
States may use their existing flexibility under
the Medicaid program to eliminate the
Medicaid asset limit or make it less
restrictive. States only have to file for a state
plan amendment that would be routinely
approved by the federal government.
• Expand Medicaid or SCHIP eligibility for
parents above current income limits. This
is especially important for states in which the
Medicaid income limit for parents is
substantially below the poverty line. (In one
state, for example, parents with incomes of
more than 20 percent of the poverty line —
about $3,100 annually for a family of three
— are ineligible for Medicaid.) Since the
children in these families are generally
eligible for Medicaid or SCHIP, expanding
parents’ eligibility would ensure that the
whole family has coverage. Research has
also shown that expanded eligibility for
Center on Budget and Policy Priorities 22
parents encourages participation in public
programs by eligible but unenrolled children.
One way states can expand parent coverage
is by using the “Section 1931” option, by
which states can effectively raise their
Medicaid income limit by disregarding a
portion of workers’ income when
determining their Medicaid eligibility.
Another way to expand parent coverage is by
seeking a “Section 1115” waiver from the
federal government to use unspent SCHIP
funds to extend Medicaid and SCHIP
coverage to parents (and in some cases, to
childless adults as well).
Funding
The federal government pays between 50
percent and 79 percent of each state’s total
Medicaid costs, depending on the state. Thus, if
a state chooses to expand Medicaid coverage to
low-income working families — through
elimination of the asset test or adoption of a
Section 1931 option — at least half of the cost
would be borne by the federal government.
Previously, states that wanted to provide
health coverage to low-income working parents
had to pay the full cost themselves or make cuts
elsewhere in Medicaid to ensure that the
coverage expansion did not increase federal
costs. This requirement was eliminated by the
1996 welfare law, so states that want to expand
eligibility for parents can obtain additional
federal matching payments without identifying
offsetting savings.
States also can obtain added federal SCHIP
matching funds to expand health coverage for
working parents under a Section 1115 waiver.
The advantage of using SCHIP funds rather than
Medicaid funds is that it would reduce the
amount of state funds that must be contributed,
since SCHIP has a higher federal matching rate
than Medicaid. (The federal matching rate for
SCHIP ranges from 65 percent to 83 percent.)
A significant pitfall with the Section 1115
approach, however, is that a number of states are
projected to face SCHIP funding shortfalls over
the next several years. By 2007, 18 states will
have insufficient federal SCHIP funding to
sustain their existing programs. As a result, a
number of states will need to use any unspent
SCHIP funds to maintain coverage for children
rather than to extend coverage to more parents.
States Using the Option
As of April 2003, 21 states have eliminated
the Medicaid asset test for families.
Also, six states have expanded Medicaid
parent coverage using a Section 1931 option:
California, Connecticut, District of Columbia,
Maine, Ohio, and Rhode Island.
Arizona and Illinois are two of the states
that have expanded parent coverage under SCHIP
using a Section 1115 waiver.
Center on Budget and Policy Priorities 23
Provide Housing Assistance to Low-
Income Families
Proposal
To provide low-income working families
with rental assistance that helps them afford
housing on the open market.
Rationale
Low-income working families face serious
housing affordability and quality problems.
Some 4.3 million working-poor households — 64
percent of all such households — spent more
than half of their income on housing in 2003. The
majority of these households contain children.
These problems affect both renters and
owners. More than two-thirds of the working-
poor families with housing cost burdens at this
level are renters, while nearly one-third are
owners. (In this and the preceding paragraph,
working-poor households are defined as those
where either the head of household or other
family members worked at any point during the
year.)
Moreover, the housing problems of low-
income working families are getting worse. The
number of very-low-income working households
with “critical housing needs” — paying more
than half of their income for housing and/or
living in seriously inadequate housing — rose by
14 percent between 1997 and 2001, according to
data from a Center for Housing Policy analysis of
the American Housing Survey. (Very-low-
income working families are those paid at least
$2,678 annually, which corresponds to one-
quarter of annual earnings in a minimum-wage
job, but whose total income is below 50 percent
of the area median.)
These findings demonstrate that having a job
is not sufficient to ensure that families with
children can afford decent housing. High
housing costs can make it difficult for working-
poor families to retain employment by leaving
them with little income to pay work-related
expenses such as transportation and child care.
In no county, metropolitan area, or state in the
country can a family that earns the equivalent of
full-time, minimum-wage employment afford the
“fair market rent” for modest housing (as
estimated by the Department of Housing and
Urban Development) without spending more than
30 percent of its income on rent and utilities.
The lack of affordable housing can also make
it difficult for poor families to find jobs in the
first place. Most jobs that require less than a
college education are being created in suburbs,
which often are inaccessible to families living in
central cities or rural areas. Yet high housing
costs in the suburbs can prevent low-income
parents from moving closer to these newly
created jobs.
Moreover, families that cannot afford stable
housing may be forced to move frequently or
may end up homeless. Either outcome would
create major hurdles for a family in finding
and/or retaining employment.
States can help low-income working families
address their housing problems by creating a
state rental assistance program. Typically, such
programs provide families with vouchers they
use to rent housing of their choice in the private
market. Families pay a specified amount or
proportion of their income in rent; the voucher
pays the difference between the family’s rental
contribution and a reasonable limit for modest
housing.
Design Options
Some of the key issues in designing a state
rental assistance program are:
• Eligibility rules. There are a number of
different ways to define the population of
eligible households. Some states target rental
assistance on families with high housing
costs and incomes below a certain level (e.g.,
the poverty line). Other states target families
moving from welfare to work that need
housing assistance to find or retain
employment.
While this report focuses on policies aimed at
low-income working families, it should be
Center on Budget and Policy Priorities 24
noted that several states operate programs
aimed at other vulnerable populations, such
as the mentally ill, disabled, or elderly
individuals. In addition, some states provide
short-term housing assistance on an
emergency basis to help prevent low-income
families from being evicted from their
homes. Also, some states provide property
tax credits to low-income homeowners. (See
discussion of property tax relief on page 10.)
• Amount of the rental subsidy. Subsidies
should be sufficient to expand access to
housing located near jobs and to increase
families’ housing stability. States may wish
to provide a subsidy equivalent to the
difference between reasonable housing costs
and 30 percent of family income, which is
the general guideline for affordable housing
in most federal housing programs.
Alternatively, states could provide all
recipients a flat subsidy amount; the family
would pay the remaining rental cost.
• Links to housing production programs.
Some states may not have an adequate supply
of housing that can be rented with tenant-
based assistance and is located close to jobs.
Such states may wish to design a housing
assistance program to promote the
construction or rehabilitation of affordable
housing.
For example, a certain number of vouchers
could be reserved for units that are funded in
part through federal or state low-income
housing tax credits. Developers who build
these low-income housing units thereby
would be assured a constant flow of rental
income.
Funding
Federal TANF and state maintenance-of-
effort funds may be used to provide housing
assistance to families attempting to make the
transition from welfare to work. Several states
use TANF and MOE funds for this purpose.
The previously mentioned housing assistance
programs not aimed at working families, such as
those for mentally ill or elderly individuals, are
generally supported with state general funds.
States Using the Option
In recent years, Connecticut, Kentucky,
Maryland, Michigan, Minnesota, Montana,
North Carolina, New Jersey, Pennsylvania,
and Virginia, as well as Los Angeles and San
Mateo counties in California and Denver
County in Colorado, have used federal TANF or
state MOE funds (alone or in combination with
other funds) to establish housing programs for
low-income families. Though modest in size,
these programs are noteworthy because they
demonstrate the growing recognition by states
that affordable housing — like child care,
medical care, and transportation — can be an
important foundation of economic self-
sufficiency.
However, due largely to the increasing need
for TANF funds to provide basic income
maintenance, many of these programs are no
longer in operation. Programs continue on a
reduced scale in Connecticut, Los Angeles and
San Mateo counties, Maryland, and
Pennsylvania. Minnesota and Virginia now
rely on state funds to continue their programs.
Other states, such as Hawaii and
Massachusetts, have established housing
programs for low-income families using state
general funds. In 2004, New Jersey enacted a
new, $25 million rental assistance program that
will assist 2,000 families.
Center on Budget and Policy Priorities 25
Provide Transitional Food Stamps to
Families Leaving Welfare
Proposal
To provide families leaving welfare with up
to five additional months of food stamps without
requiring them to submit extra paperwork.
Rationale
Most families that leave TANF cash
assistance have low incomes and remain eligible
for food stamps when they go to work. However,
only about half of the individuals who leave cash
assistance continue to participate in the Food
Stamp Program, according to research by both
the Department of Health and Human Services
and the Urban Institute.
Often, families leaving TANF cash
assistance are not aware that they remain eligible
for food stamps, according to research by the
Manpower Demonstration Research Corporation
(MDRC). MDRC also has reported that the steps
such families must take to continue receiving
food stamps can be confusing or difficult.
If families on cash assistance knew they
would remain eligible for food stamps (and
Medicaid) when they found a job, MDRC notes,
these families might be more likely to look
seriously for employment.
The transitional food stamps option is
designed to help address these issues. Under the
2002 food stamp reauthorization law, a state may
provide up to five months of transitional food
stamps to families that leave welfare without re-
quiring the family to reapply or submit any
additional paperwork or other information.
By continuing a family’s food stamps based
on information the state already has, a
transitional benefit can both provide continuity of
assistance and make clear to the family that food
stamps are available to families who do not
receive cash welfare. Helping families retain
food stamps after leaving welfare for work can
help make the transition to work more successful
and help ensure the families are better off
working than on welfare.
An added feature of the transitional benefits
option is that it generally provides a higher level
of food stamps than many working families
would receive under the regular benefit formula.
This can serve as a reward for work that will
reinforce states’ “welfare to work” messages.
Design Options
States that adopt the transitional benefits
option should automatically issue these benefits
based on information they already have, without
further contact with the household. In addition,
states should:
• Adopt broad eligibility criteria. All
households that cease to receive TANF cash
assistance are eligible for transitional food
stamps unless their TANF case closes
because of a sanction or they are disqualified
from food stamps. If a food stamp household
contains members who are not in the TANF
unit, the entire food stamp household may
still receive transitional food stamps when
there is no longer any TANF income.
Some states may think of transitional food
stamps as similar to transitional Medicaid
and apply it only to households that the state
knows have left TANF because of an
increase in earnings. There is, however, a
key difference between the two kinds of
benefits. Transitional Medicaid is designed
to provide continued coverage to families
that have lost eligibility for regular Medicaid
because of increased earnings. Transitional
food stamps, in contrast, is designed to
reduce the paperwork burden of food stamp
participation for families that are leaving
welfare but likely remain eligible for food
stamps.
Thus, states can — and should — apply
transitional food stamps to any household
that leaves TANF for reasons other than a
sanction, even if the state does not know
whether the household has a new source of
income.
Center on Budget and Policy Priorities 26
Similarly, states should apply transitional
food stamps to households that lose TANF
benefits because they fail to complete the
TANF reapplication process. Frequently,
states set the food stamp and TANF
eligibility renewals for the same time, so if a
household fails to reapply or to show up for
its interview, it loses both TANF and food
stamp benefits. Providing such families with
transitional food stamps will provide a very
clear signal that food stamps are available as
a work support for people who do not
participate in TANF.
• Freeze benefit levels at their prior level.
Under the transitional benefits option, states
may either freeze the food stamp benefit at
the level received in the household’s last
month on TANF (adjusted for the loss of
TANF income) or change the benefit based
on information they obtain from another
program in which the household participates.
It would be preferable — from both the
household’s perspective and the state’s — to
freeze the benefit level after adjusting only
for the loss of TANF income. From the
household’s perspective, the transitional
benefit level generally will be the maximum
food stamp benefit available for a given
household size. (This is because if a
household had only TANF income in the
month before leaving TANF and that income
is removed in calculating the transitional
benefit, the household will qualify for the
maximum benefit.) Taking household
earnings or other income into account would
generally reduce the household’s benefit.
In addition, a state that acts on changes that
are reported for another program may have to
contact households to request additional
information about these changes. That would
undermine the paperwork-reduction goal of
the transitional food stamp option.
From the state’s perspective, freezing the
transitional benefit level helps respond to the
concern that a state’s food stamp error rate
will increase if it serves more families who
have left TANF for work. (The incomes of
such families fluctuate more than those of
families receiving cash assistance, and if
eligibility workers fail to adjust the family’s
benefit levels correctly to reflect each
change, an over- or underpayment can
result.) If the state bases the transitional
benefit on information it obtained before the
family left TANF and then freezes this
benefit so households need not report
changes in their circumstances, states can
have a higher degree of confidence that these
households are receiving the “correct”
benefit level.
In fact, a state that freezes the benefit level
for transitional food stamps should have
lower error rates for families receiving
transitional food stamps than for the rest of
its caseload.
Funding
The federal government fully funds food
stamp benefits. It also shares with states the cost
of administering the Food Stamp Program.
States Using the Option
Thirteen states have adopted the transitional
food stamp option: Arizona, California,
Colorado, Maryland, Massachusetts,
Nebraska, New Mexico, New York, North
Carolina, Oregon, Pennsylvania, Virginia, and
Wisconsin.
Center on Budget and Policy Priorities 27
Expand Access to Child Care
Assistance
Proposal
To provide child care subsidies to a larger
share of low-income working families that need
help paying for child care.
Rationale
Child care assistance programs help low-
income families “afford” to work by helping
them pay for child care. Without such assistance,
low-income working families often must spend a
large portion of their income on child care, place
their children in lower-quality child care, or settle
for less-stable care arrangements. Several studies
of families on waiting lists for child care
subsidies have found that some families lose their
jobs and are forced to turn to welfare when they
cannot find child care that is affordable and
stable.
Low-income working families need help
paying for child care because child care is very
expensive. For example, a 2002 survey of child
care providers in Arizona found that the median
price of full-time, full-day child care in a child
care center for a preschool-age child was almost
$500 per month — more than 40 percent of the
budget of a family with income at the poverty
line. Child care for infants was even costlier.
While child care rates vary across the country,
many states have rates comparable to or higher
than those in Arizona.
Despite the high cost of child care, however,
just a small fraction of children who need help
paying for child care actually receive it. Only
about 14 percent of children eligible for child
care assistance under federal eligibility standards
received child care assistance in 2001, according
to the Center for Law and Social Policy.
Similarly, the large majority of children eligible
for child care assistance under state eligibility
guidelines do not receive help.
Recognizing the large unmet need, most
states expanded their child care assistance
programs in the 1990s. In recent years, however,
about half of the states made cuts in these
programs. These cuts reflected general state
budget pressures as well as the growing squeeze
on state TANF budgets (discussed below), which
has led states to freeze or reduce the amount of
TANF funding going toward child care.
States that made cuts in their child care
programs took a variety of steps that make it
difficult for families to get the help they need,
including reducing income-eligibility limits,
freezing applications or creating waiting lists,
reducing or freezing provider payments,
increasing family co-payments, and reducing
funding for initiatives that seek to improve the
quality of child care.
Currently, almost half of the states either
have a waiting list for child care assistance or
have closed enrollment for low-income working
families and do not keep a waiting list. The
waiting lists can be quite long: in California
alone, for example, 280,000 eligible children are
waiting for assistance.
In addition, income-eligibility cut-offs for
child care are low in many states. Some 16 states
now cut off eligibility at or below 150 percent of
the federal poverty line, well below the income
that many families need in order to afford quality
child care.
Research has shown that by providing more
families with subsidies that enable them to
purchase quality child care for their children,
states can help low-income parents retain their
employment. For example, a study of Rhode
Island’s child care program found that policies
that expanded access to child care subsidies
significantly increased the probability that
parents would leave welfare for work and work
more than 20 hours per week.
Similarly, a Michigan study found, after
controlling for demographic and other factors
shown to affect work, that TANF recipients with
subsidized child care worked 50 percent more
months and had more than 100 percent higher
earnings than TANF recipients without
subsidized child care.
Center on Budget and Policy Priorities 28
Finally, a national study by the Urban
Institute found that families leaving welfare that
receive child care assistance are less likely to
return to the rolls than families that do not
receive child care assistance.
Research has also shown that quality early
education programs can improve children’s
educational outcomes. For example, studies by
the National Institute of Child Health and Human
Development (NICHD) have shown that children
in higher-quality child care arrangements had
better scores on cognitive and language tests than
children in lower-quality arrangements. (Quality
of care was evaluated by such measures as adult-
to-child ratios and provider training.) In
addition, NICHD research has shown that quality
care is associated with lower rates of behavioral
problems among kindergartners.
Design Options
All states have child care programs that serve
both families moving from welfare to work and
at least some working families who do not
receive (and may never have received) welfare.
Additional funding can be used to:
• Increase the number of children receiving
child care subsidies. States can, for
example, extend child care subsidies to
families on the waiting list or raise their
income-eligibility limits. In addition, states
can ensure that information about their child
care subsidy programs is widely available so
eligible families know about the program and
how to access assistance.
• Update provider payments. Some states
have frozen or cut provider payments in
recent years. As these payments erode, fewer
providers may be willing to serve children
with subsidies. In addition, failure to provide
adequate payments can compromise the
quality of the care children receive.
Federal regulations require states to
reimburse providers sufficiently to ensure
that families with subsidies have “equal
access” to the same range of providers as
other families do. The Department of Health
and Human Services has indicated that this
requirement can be satisfied by setting
reimbursement rates at the 75
th
percentile of
the current market rates charged by
providers. Most states now set provider
payments below this level.
States with payment levels below the 75
th
-
percentile minimum level should consider
raising payment levels at least to this level.
• Reduce co-payments for families. In some
states, low-income families with child care
subsidies must pay a significant share of the
cost of child care. Moreover, some states
have raised co-payments significantly in
recent years. Some experts suggest that low-
income families should pay no larger a share
of their income on child care than typical
middle- and upper- income families do.
Nationally, families (with and without
subsidies) who pay for child care spend about
seven percent of their income on care. Yet,
in about two-thirds of all states, a family with
income at 150 percent of the poverty line
either would be eligible for no child care
assistance at all or would face co-payment
levels above seven percent.
• Invest in initiatives to improve quality.
States can, for example, set standards that
promote better child outcomes (such as low
child-to-staff ratios and teacher education
requirements) and give extra resources to
providers that meet those standards. Also,
states can subsidize teacher training and
curriculum development, provide grants to
providers to upgrade their materials, and
invest in the staff needed to monitor child
care programs. The federal government
made similar investments in child care
centers serving military families, helping to
create a child care system widely touted for
its quality.
Funding
States use both federal and state funds to
support their child care assistance programs. The
main federal funding sources are the Child Care
Center on Budget and Policy Priorities 29
and Development Block Grant and the TANF
block grant.
When states expanded their child care
assistance programs during the late 1990s, they
largely relied on added federal funding to do so.
In particular, states used significant amounts of
TANF funds to expand their programs, including
unspent TANF “reserve” funds that were leftover
from the early years of TANF implementation.
In coming years, increases in federal child
care funding may be considerably more modest
than in the past. One reason is that most states
have exhausted most or all of their TANF
reserves. Another is that the size of each state’s
annual TANF block grant is likely to remain
frozen, so inflation will continue to erode its
value even as costs in TANF-funded programs
increase. And, while the federal government
may increase child care funding at some point as
part of TANF reauthorization legislation, the
increase may be fairly modest.
Thus, if states are to expand access to child
care assistance to low-income working families,
they will need to accomplish this largely by
increasing their own funding for child care and
early education programs. (It should be noted
that some states are not spending enough state
funds on child care to receive all of the federal
matching funds for which they could qualify.
These states could obtain added federal funds by
committing more state resources in this area.)
States Using the Option
Some states, such as Rhode Island, have
taken extra steps to ensure that low-income
working families have access to child care
assistance. Rhode Island provides child care
assistance to all low-income working families
with incomes below 225 percent of the federal
poverty line and does not have a waiting list. To
improve the quality of child care, the state helps
child care providers gain accreditation by the
National Association for the Education of Young
Children by paying accreditation fees and by
providing technical assistance to providers so
they can meet the necessary quality standards.
Rhode Island also provides resources for teacher
training, subsidizes health care benefits for child
care providers, and supports on-site technical
assistance efforts.
Career Advancement Assistance
Center on Budget and Policy Priorities 33
Help Families Establish Individual
Development Accounts
Proposal
To help low-income families build savings
by establishing Individual Development
Accounts.
Rationale
Having funds set aside in a savings account
can give families needed financial stability.
Unfortunately, most working-poor families —
like many other Americans — have not been
able to build up savings accounts or acquire
other assets. One-third of all families, and 60
percent of African American and Hispanic
families, do not have significant levels of
savings.
Not surprisingly, low-income families have
the lowest level of savings of all American
families.
The absence of a financial cushion can be
particularly devastating for a poor working
family. Even a small amount of savings can
help families cope with problems such as
unexpected medical expenses or the need for a
car repair so that their ability to maintain
employment is not jeopardized. In addition,
savings can help a family move up the economic
ladder, such as by enabling them to finance
higher education.
States can play an important role in
promoting asset development for working-poor
families by helping them establish Individual
Development Accounts (IDAs). These are
savings accounts, supplemented with matching
funds from state, federal, and other public and
private sources, designed to help low-income
and low-wealth families build modest assets for
investments in such areas as higher education,
homeownership, or creating a small business.
IDAs are most often offered through non-profit
organizations, in conjunction with other asset-
building initiatives such as homeownership or
microenterprise development programs.
Studies of existing IDA programs have
shown that they can help low-income people
save and acquire assets. For example, 2,400
low-income families participating in the
American Dream Demonstration, an IDA policy
demonstration project consisting of 14 programs
implemented at 13 sites across the nation, saved
an average of about $700 per saver per year
(including matching funds) in their IDAs.
Funding
Roughly 20 states use TANF funds to cover
the cost of IDA matching payments and/or the
administrative costs of running IDA programs.
However, TANF funds are likely to become a
less secure source of IDA funding in future
years if federal TANF grants to the states —
which have been frozen at their current level
since 1997 — continue to shrink in inflation-
adjusted terms. States could be forced to decide
between allotting increasingly scarce TANF
funds to IDAs or to benefits and services aimed
at meeting families’ basic needs.
Other sources of state and federal funding
for IDA programs include state general revenue
funds, Assets for Independence Act funds
(which must be matched by non-federal funds),
Community Development Block Grant funds,
Office of Refugee Resettlement funds,
Community Services Block Grant funds, HUD
HOPE VI funds, and Federal Home Loan Bank
Affordable Housing Program funds.
State tax credits are another source of public
support for IDA programs. These credits
encourage private contributions to IDA
programs by providing a tax reduction for such
contributions. State tax credits typically equal
50 percent of the contribution. States can also
encourage private contributions by allowing a
tax deduction, comparable to the federal
charitable donation deduction.
Design Options
State-supported IDA programs exist in about
half of the states. Many IDA programs are
administered by selected non-profits, local
Center on Budget and Policy Priorities 34
government agencies, or a combination of the
two. States, though, often establish program
rules such as matching rates, eligibility criteria,
and the state’s tax treatment of IDA funds,
particularly for programs established under state
law.
Issues that states should consider when
setting up an IDA program include:
• Eligibility rules. The rules regarding who
may open an IDA vary widely across
programs and often depend on the
requirements of various funding sources. In
some programs, households must be
receiving (or eligible to receive) TANF
benefits, or be eligible to receive the Earned
Income Tax Credit, in order to qualify for an
IDA. Alternatively, some IDA programs
have established income limits set at a
certain percentage of the federal poverty line
or the area median income. By setting
relatively broad eligibility criteria, states can
enable more low-income working families
to take advantage of IDAs.
• Acceptable uses of IDA funds. In some
IDA programs that are supported with
federal funds, accountholders can withdraw
funds only for post-secondary education,
first-time homeownership, or setting up a
business. Some states, however, also allow
IDAs to be used to purchase a vehicle, to
repair a home, or for training program
expenses, among other purposes. States
with broad flexibility in potential uses for
IDAs typically find it easier to recruit
participants.
• Financial education. Recognizing the
difficulties families can face in meeting their
daily needs while simultaneously building
for the future on a limited income, IDA
programs generally provide mandatory
financial education for accountholders.
Federal IDA laws and all state IDA laws
require that financial education be provided
for IDA savers.
• Effects on eligibility for other public
benefits. The 1996 welfare law states that
funds in a TANF-funded IDA may not be
considered in the determination of a family’s
eligibility or benefit level for TANF or other
public benefit programs, so long as the
account is used for post-secondary
education, first-time homeownership, or
capitalization of a business. This means
that funds in a TANF IDA should not affect
a family’s eligibility for other public
benefits.
In 2000, a new law extended this same
protection to IDAs funded under the Assets
for Independence Act (AFIA).
Even for IDAs that do not use AFIA or
TANF funds (or are used for purposes other
than the three purposes approved under
TANF), states can protect the
accountholders’ TANF and Medicaid
eligibility by exercising their authority to
determine what counts as assets in those
programs. If the state disregards IDAs when
determining eligibility for TANF or family
Medicaid, the state also may exclude the
account from consideration for food stamps.
States Using the Option
About 30 states currently operate IDA
programs.
Eight states help support IDAs with general
revenues: Connecticut, Indiana, Maryland,
Minnesota, Pennsylvania, South Carolina,
Tennessee, and Vermont.
Ten states offer tax credits for private
contributions to IDA programs: Arkansas,
Colorado, Connecticut, Hawaii, Indiana,
Kansas, Maine, Missouri, Oregon, and
Pennsylvania. However, two of these states
(Colorado and Kansas) have yet to implement
the tax credits due to budgetary issues.
Center on Budget and Policy Priorities 35
Provide Post-Secondary Education
and Training to Low-Income Parents
1
Proposal
To increase the earnings potential of low-
income parents by helping them attain job skills
and credentials.
Rationale
Research has shown that the welfare-to-
work programs that have been most successful
in helping parents work more and increase
earnings over the long run are those that include
substantial access to education and training,
together with employment services and a strong
overall focus on work as the goal. This is
because skills and education credentials are keys
to success in the labor market and because
welfare recipients generally have low skills that
hinder their efforts to earn enough to support a
family.
Job training and other postsecondary
activities appear to be particularly important in
helping low-income parents qualify for higher-
paying, more stable jobs. For example, the
experimental National Evaluation of Welfare-to-
Work Strategies (NEWWS) found that of 11
programs studied, the program in Portland,
Oregon was most successful at increasing
recipients’ employment rates and earnings, the
likelihood that recipients would find jobs with
benefits, and the likelihood that they would re-
main employed.
The Portland program (which is operated by
local community colleges) made substantial use
of education and training, as well as job search
and other activities, and increased the number of
recipients who received education and training
credentials, including both high school diplomas
and occupational certificates. In Portland, over
half of those with a high school diploma
attended a community, two-year, or four-year
college at some point in the five years after
1
This section was written by Amy-Ellen Duke of the
Center for Law and Social Policy.
entering the program — a 66 percent increase
compared to a control group.
The NEWWS findings are consistent with
other research showing that programs that use
both job search activities and education and
training activities are more effective than
programs relying primarily on just one type of
ser-vice.
Other, nonexperimental studies also suggest
substantial economic benefits of postsecondary
education for low-income parents. A 2002 study
of the Maine Parents as Scholars program,
which supports welfare participants while they
complete a two- or four-year degree, found that
graduates increased their hourly median wages
from $8.00 before college to $11.71
immediately after college — a 46-percent
increase.
Additionally, a 2004 study of recipients of
CalWORKs (California’s welfare program) who
had enrolled in California community colleges
shows that the more education they attained, the
greater their earnings, even for those who
entered college without a high school diploma or
GED. Those who obtained an associate degree
dramatically increased their earnings (from
about $4,000 annually before college to nearly
$20,000 two years after graduating), and those in
vocational fields saw even larger increases.
Other key findings from the CalWorks study
include:
• CalWORKs students were twice as likely to
work year-round after attending community
college than before.
• CalWORKs students who completed a
vocational certificate or associate degree
pro-gram (particularly in the nursing, dental,
and business fields) tended to have higher
earnings and higher employment rates than
those who completed non-vocational pro-
grams.
• Prior to and during college, CalWORKs
students earned considerably less than other
Center on Budget and Policy Priorities 36
women students, but after college this gap
narrowed. Also, the earnings gap closed
more quickly among those who had a
certificate or associate degree than among
those who exited college without a
credential.
Design Options
Below are the major issues states should
consider in designing an education and training
program for low-income individuals.
• Program length matters. In the California
study, among vocational certificate
programs, the longer the program, the
greater the economic pay-off. In general,
vocational certificate programs needed to be
at least 30 units (or ten courses) in length to
yield earnings that topped $15,000 by the
second year out of school. CalWORKs
students who left with an associate degree
realized a 403 percent increase in median
annual earnings between the time they
entered college and their second year out of
school. This may reflect, in part, the fact
that better-paying health professions
required longer training.
• Provide support services. California
allocated $65 million to community colleges
to help them redesign their curricula and
pro-vide new services, such as child care,
work study, service coordination, and job
development and placement programs. Cal-
WORKs earmarked $15 million of these
funds solely for child care services, but
students also relied on child care vouchers
offered through other programs. Interviews
with CalWORKs students indicate these
services were often a key factor in their
academic success.
The Federal Work Study program (available
at most community and four-year colleges)
provides jobs for undergraduate and
graduate students showing financial need,
allowing them to earn hourly wages ranging
from the federal minimum wage upward,
depending upon the type of work and skills
required. Work-study jobs provide needed
income and valuable work experience, and,
especially when located off-campus with
private employers, can lead to permanent
jobs. States may need to use state funds to
create additional work-study jobs for low-
income parents, however, because often too
few federally funded work study jobs are
available, particularly at community
colleges.
Coordination of support services is crucial to
student retention and success. California
employed CAlWorks coordinators at each
campus to make referrals to various student
services, provide guidance and support,
track students’ progress and place students
in appropriate academic programs.
• Draw on existing programs. In California,
services such as academic counseling,
assessment, and orientation are available for
all enrolled community college students.
These services can help nontraditional
students (such as low-income parents) as
well as traditional students plan and
implement their educational and vocational
plans and set goals leading to their eventual
success in the community college.
However, nontraditional students may need
some extra help in learning about and
navigating these services.
• Anticipate realistic timeframes for
completion of credentials. Most
community college students (including
traditional and nontraditional students) need
3.5 years or more to complete an associate
degree and two years to complete an
occupational certificate. Considering the
additional barriers that low-income parents
face, such as the need for remedial education
and the balancing of work and family
demands, they may need longer than the
traditional two-year time frame to complete
a community college associate degree or
vocational program.
Center on Budget and Policy Priorities 37
Funding
Postsecondary education and training for
low-income parents can be financed through a
combination of federal and state dollars,
including federal and state financial student
assistance, TANF and child care funds, and
other state and local education appropriations.
Low-income parents in credit-granting
college courses are typically eligible for a range
of federal and state assistance. Federal
assistance, which includes Pell grants, work-
study jobs, and subsidized student loans, is
available even to students who are attending less
than half-time or who lack a high school
diploma or GED. States and localities provide
base funding for public colleges keeping tuition
relatively affordable. States also often provide
student aid through tuition waivers or grants; the
state student aid commission and local
community college financial aid offices are the
best sources of information on what is available.
In addition, several states have invested state
or federal TANF funds to support attainment of
postsecondary credentials by low-income
parents.
Finally, several states use TANF
maintenance-of-effort funds for postsecondary
student aid geared toward parents eligible for
public assistance. These programs provide
income support and other supportive services for
parents pursuing postsecondary credentials.
States Using the Option
As of 2002, some 23 states allowed TANF
recipients to engage in postsecondary education
and training for more than the one-year period
during which federal law allows such activities
to count toward each state’s TANF work
participation rate. States have the flexibility
under federal law to allow other, non-countable
activities as long as the state is meeting the
federal work participation rates. This additional
time in postsecondary education is needed
because while the majority of recipients are in
one-year occupational certificate programs, it
typically takes them longer than a year to
complete them because they must often attend
part-time and take remedial reading, writing, or
math courses before starting skills training.
California’s CalWORKs program allows
participants to attend a California community
college for up to 24 months (some recipients are
limited to 18 months) as a way to meet state
work requirements. In 2002, 28 percent of
California’s adult welfare population were
enrolled in at least one course at a community
college; the majority of CalWORKs students
also worked while in school.
In addition to the California initiative,
Kentucky’s Ready to Work program and
Louisiana’s TANF1 program provide a range of
supports to low-income parents in postsecondary
education to help them succeed. Washington
has also invested TANF funds in increasing
services to low-income parents in college.
States with MOE-funded postsecondary
student aid geared toward parents eligible for
public assistance include Maine, New Jersey,
New Mexico, Vermont, and West Virginia.
Income Support for the
Unemployed
Center on Budget and Policy Priorities 41
Make More Workers Eligible for
Unemployment Insurance
Proposal
To make workers who have recently joined
the work force, part-time workers, those whose
personal circumstances limit their availability
for work, and seasonal workers eligible for
unemployment insurance.
Rationale
The unemployment insurance (UI) system is
designed to provide temporary help to workers
who have lost their jobs and are looking for
work. However, many such workers are
ineligible for UI benefits. Nationally, fewer than
half of all jobless workers receive UI benefits,
and in some states, fewer than one-third do.
While UI eligibility criteria vary by state,
they basically amount to three tests: Did the
worker have enough wages in the past year to
qualify? Was the worker involuntarily separated
from employment? Is the worker available for
work? In many states, these tests have been
implemented in a fashion that denies benefits to
large numbers of workers.
Workers who have recently joined the work
force often are ineligible for UI benefits because
when most states determine whether a worker
earned enough to qualify for UI benefits, they do
not count the worker’s earnings in the most
recent two calendar quarters before the layoff.
The failure to count these quarters especially
harms low-wage workers, since their earnings
are lower to begin with.
Workers also can be denied UI benefits
because of state requirements relating to the
distribution of their earnings over a period of
time. For example, many states require earnings
in at least two different quarters.
The effects of these rules can be seen in the
fact that someone who began work March 1 and
was laid off in late December would not qualify
for UI benefits in most states, even though he or
she worked for nearly ten months and had total
earnings well above the qualifying level.
Like recent entrants to the work force, part-
time workers are ineligible for UI benefits in
most states, even though they make up about
one-sixth of all workers. The reason is that 26
states define “available for work” as available
for full-time work; four other states have very
narrow exceptions for part-time workers.
Thus, someone who has been working 20 to
30 hours per week and is available for work for
a similar amount of time — such as a mother
with a young child — is disqualified for UI
benefits even if she meets the earnings
requirement, was involuntarily separated from
employment, and is seeking work comparable to
the job she lost.
Making workers with recent work histories
and part-time workers eligible for UI benefits
would benefit more than a million workers over
the course of a year, according to the
Department of Labor.
In addition, while all states allow some
workers who leave a job voluntarily but with
“good cause” to be eligible for UI benefits,
about two-thirds of the states require this “good
cause” to be connected with work or attributable
to the employer. Many low-wage workers are
forced to leave work because of changes in
individual circumstances, such as the loss of
child care or the illness of a family member.
They are not eligible for UI benefits in a state
where “good cause” must be connected to work
or the employer.
As welfare reform efforts increase the
number of single parents in the work force, this
is becoming a bigger problem. States can
address this problem by broadening the list of
reasons that qualify as “good cause” for leaving
employment.
Seasonal workers are another group who
often are ineligible for UI benefits. A number of
states do not count the earnings a worker accrues
in seasonal labor when determining whether he
Center on Budget and Policy Priorities 42
or she is eligible for UI benefits in the off-
season.
States adopted these restrictions at a time
when many workers chose to work only
seasonally and left the labor force for part of the
year. Yet with large and increasing numbers of
workers (especially low-wage workers) able to
find only seasonal work, such restrictions make
less sense today. They are unnecessary as well:
individuals who choose not to work in the off-
season are not eligible for UI benefits, since a
worker must be looking for work actively to
qualify for benefits.
Design Options
• Extend UI benefits to workers who have
recently joined the work force. To
accomplish this, states will need to
incorporate the most recent wages of all
workers into the UI benefit eligibility
formula. The basic reform involves
including more recent quarters in a state’s
“base period” or “base year.” State computer
systems and other processes would have to
be updated to include the most recent wages.
Counting workers’ most recent wages not
only would make some newer workers
eligible for benefits, but also would make
other workers eligible for larger benefits
than they received under the old formula.
• Make part-time workers eligible for UI
benefits. States can accomplish this simply
by eliminating the requirement that workers
be available for full-time work. New
Mexico, for example, enacted legislation in
2003 stating that “No individual . . . shall be
deemed ineligible for benefits solely for the
reason that the individual seeks, applies for
or accepts only part-time work . . . if the part
time work is for at least twenty hours per
week.” Part-time workers would still need
to meet all other UI requirements, such as
having sufficient earnings.
• Broaden the acceptable reasons for
leaving work voluntarily. To enable
workers who leave their jobs because of the
loss of child care or transportation or other
individual circumstances to receive UI
benefits, states can amend their UI eligibility
laws to include individuals leaving work
“for compelling domestic circumstances.”
• Remove restrictions on seasonal workers.
Fifteen states bar seasonal workers from
receiving UI benefits by not counting their
seasonal wages toward their UI eligibility or
by prohibiting them from drawing UI
benefits outside their normal seasonal work
period. States can treat seasonal workers
more fairly by removing these provisions.
Funding
These changes can be financed from state UI
trust funds. Most states have enough funds in
their trust fund to finance an extension of UI
benefits to workers who have recently joined the
work force, part-time workers, and seasonal
workers.
States Using the Option
Eighteen states plus the District of
Columbia now count the last three to six months
of wages in determining UI eligibility.
Nine states’ UI systems treat part-time
workers the same as full-time workers, and 24
other states have adopted more favorable
eligibility rules for part-time workers.
At least 15 states provide UI benefits to
individuals forced to leave work due to a range
of compelling domestic circumstances, including
child care and domestic violence.
Finally, all but 15 states do not distinguish
between seasonal workers and other workers in
determining UI eligibility.
Center on Budget and Policy Priorities 43
Extend Unemployment Insurance
Benefits When the Labor Market Is
Weak
Proposal
To adopt a “trigger” for additional weeks of
unemployment insurance benefits that is more
sensitive to a difficult or worsening job market.
Rationale
Unemployment insurance (UI) benefits
typically expire after 26 weeks. If a state’s
unemployment rate rises high enough, however,
federal law provides for an additional 13 weeks
of benefits through what is known as the
“Extended Benefits” program. The federal
government pays half the cost of these weeks of
extended benefits from federal UI trust funds;
states pay the other half from their own UI
accounts.
These additional weeks of UI benefits can
provide critical support to families during periods
of high or rising unemployment, when an
increasing number of jobless workers exhaust
their regular UI benefits because they are unable
to find new jobs within 26 weeks.
Extending these workers’ benefits also helps
stimulate the economy by helping prop up
consumer demand during a time of labor market
weakness.
During the recent economic downturn,
however, only four states (Alaska, Michigan,
Oregon, and Washington) provided extended UI
benefits. In most states, unemployment rates
would have had to rise substantially above their
peak levels during the downturn before extended
benefits could be provided.
The source of the problem is the “triggers”
that states use to activate the additional 13 weeks
of UI benefits. Under federal law, there are
several ways states can activate extended
benefits. In all states, extended benefits are
provided if, over a 13 week period, a state’s
average insured unemployment rate (that is, the
number of workers collecting UI benefits divided
by the number of workers eligible for UI benefits
if they become unemployed) exceeds 5.0 percent
and is at least 20 percent greater than the rate in
each of the previous two years.
This standard trigger is not particularly
sensitive to changes in the job market. For
example, at no point during the recent economic
downturn did this trigger activate in any state.
States can compensate for the weaknesses in the
standard trigger by adopting one or both of the
additional triggers described below, which are
more sensitive.
It should be noted that in recent downturns,
the federal government has created a temporary
program that provides up to 13 weeks of
federally funded benefits to workers who exhaust
their regular 26 weeks of UI benefits. State
Extended Benefit programs would come into
effect only after the federal extended benefits
were exhausted (and if the economy remained
weak), so these extended benefits would not take
the place of the federal benefits in states that
adopted an optional trigger. Moreover, during
prolonged periods of labor market weakness,
many workers will need the extra weeks of
benefits that a temporary federal program can
provide.
Design Options
States should adopt one or both of the
following optional triggers:
• Trigger based on the insured
unemployment rate. One optional trigger
provides extended benefits when the average
insured unemployment rate for a 13-week
period exceeds 6.0 percent — a higher
threshold than in the standard trigger — but
without the 20 percent increase requirement.
The absence of that requirement means that
states that adopt this optional trigger will be
able to provide extended benefits at times
when unemployment is at a high level but not
continuing to increase.
Center on Budget and Policy Priorities 44
• Trigger based on the total unemployment
rate. The other optional trigger provides
extended benefits when a state’s total
unemployment rate (the number of
unemployed workers divided by the total
labor force) over a 13-week period exceeds
6.5 percent and is at least 10 percent higher
than in one of the past two years.
Furthermore, if the total unemployment rate
exceeds 8 percent, 20 weeks of additional
benefits can be offered rather than the
standard 13. This trigger is the most
sensitive of the three triggers to increases in
unemployment.
Funding
As noted above, the federal government pays
half the cost of benefits under the Extended
Benefits program from federal UI trust funds.
The other half of the cost is borne by states from
their UI trust funds.
States Using the Option
All but 12 states have adopted the optional
insured unemployment rate trigger. The 12 states
that have not adopted it are: Delaware, Florida,
Georgia, Iowa, Kentucky, Massachusetts, New
Hampshire, North Dakota, South Dakota,
Utah, Washington, and Wyoming.
Only eight states have adopted the optional
total unemployment rate trigger: Alaska,
Connecticut, Kansas, New Hampshire,
Oregon, Rhode Island, Vermont, and
Washington. However, these states include
three of the four states (Alaska, Oregon, and
Washington) that qualified under the Extended
Benefits program to provide additional benefits
during the recent downturn. (Michigan also
qualified using the standard trigger. In addition,
Hawaii, New Hampshire and Wisconsin provided
additional weeks of benefits entirely at state
expense.)
Center on Budget and Policy Priorities 45
Raise TANF Benefit Amounts to More
Adequate Levels
Proposal
To help unemployed families better meet
their basic needs and focus their energies on
overcoming their difficulties by providing them
with more adequate benefits through TANF.
Rationale
The first goal of TANF is to assist needy
families so their children can be cared for in their
own homes or in the homes of relatives. There
also is broad agreement that TANF programs
should be designed to increase the well-being of
children. One way states pursue these goals is by
providing transitional support grants — monthly
income support that families use to meet basic
needs — to eligible families. (While such grants
are often referred to as “welfare,” that term is not
used here because it also can refer to many other
forms of assistance to low-income families.)
TANF grant levels vary from state to state,
but generally they are very low. The maximum
monthly grant for a family of three in the median
state is roughly $389 a month, or just 30 percent
of the 2004 federal poverty line. Even if this
family also received food stamps, the combined
value of its TANF and food stamp benefits for
the year would be nearly $7,000 below the
poverty line.
In most states, the size of TANF grants (and
before that, AFDC grants) has remained frozen
over the past decade, without any adjustment for
inflation or other factors. As a result, in the
typical state, the purchasing power of the
maximum grant fell by more than 18 percent
between 1994 and 2003.
Not surprisingly, therefore, most states do
not currently provide sufficient income support
for a family to meet its basic needs. Recent
studies have found that slightly more than one-
third of families receiving TANF assistance
experience “food insecurity” during the course of
a year, such as running out of food or cutting
back on meal size because of a lack of resources.
Other research has shown that families receiving
TANF assistance are vulnerable to evictions,
utility shut-offs, and other hardships. For
example, a study in New Jersey — a state whose
TANF grant levels are above the national median
— found that about 30 percent of TANF
recipients had experienced housing problems
over the course of a year, and half of TANF
recipients had experienced one or more serious
hardships in housing or another area.
Housing is of particular concern to TANF
recipients because it typically consumes the
largest share of low-income families’ income.
To be considered affordable, housing should cost
no more than 30 percent of a household’s
income, according to the federal government.
Yet in virtually all states, families that are
receiving both TANF and food stamp benefits
pay more than 30 percent of the combined value
of these benefits on housing. In 22 states,
housing takes up more than half of the combined
value of TANF and food stamp benefits.
By providing more adequate benefits through
TANF, states can help stabilize families and
allow parents to engage more productively in
activities that will help them gain employment.
Many parents receiving TANF have such low
incomes that they must spend a great deal of time
and energy obtaining additional help from social
service agencies, private charities, relatives, and
friends to meet their family’s basic needs.
Raising the TANF benefit level would lessen
these pressures. It also would provide some
protection against unanticipated events or
misfortunes that otherwise could trigger a
financial crisis.
In the past, some policymakers argued
against increasing grant levels because they
believed (despite a lack of supporting research
evidence) that it would undermine parents’ work
effort and motivation to leave welfare. With
passage of the 1996 federal welfare reform law,
those arguments no longer hold water. Most
parents receiving TANF grants are required to
seek work and will have their assistance
terminated if they do not comply. In addition, as
its full name suggests, TANF — Temporary
Assistance to Needy Families — is now a
Center on Budget and Policy Priorities 46
temporary program for most families. Nearly all
states now limit the amount of time a family can
receive a TANF grant.
Design Options
There are several ways in which states can
make their TANF grants more adequate and
ensure that they remain adequate in future years:
• Compensate for the past erosion of
benefits’ purchasing power when raising
TANF grant levels. Under this approach,
the size of any grant increase could be tied to
increases in the cost of living since the last
grant adjustment or over some other
specified period of time.
• Set TANF grants at a specified percentage
of the federal poverty line. Because the
poverty line is adjusted each year to
compensate for the effects of inflation, this
approach would automatically generate small
annual boosts in grant levels and thereby
preserve the purchasing power of grants over
time.
• Tie the size of a grant increase to increases
in rental costs. Linking changes in TANF
grant levels to changes in housing costs
would recognize the central role that housing
costs play in the monthly budgets of low-
income families. Annual data from the U.S.
Department of Housing and Urban
Development on “fair market rent” levels can
be used to provide a good estimate of annual
increases in rental housing for low-income
families.
Funding
An increase in TANF benefit levels can be
financed with federal TANF revenues or state
general revenues. Increased state investment in
this area would be appropriate, given that states
today generally spend only about 75 percent of
what they spent in the early 1990s on welfare
programs (after inflation is taken into account).
States Using the Option
Thirteen states increased their maximum
TANF grant levels at least once between 1997
and 2004. It is notable that prior to these
increases, three of these states — Mississippi,
Tennessee, and Texas — had been among the
lowest in the nation in terms of benefit levels and
had not increased their benefits significantly in at
least a decade. The benefit increases in
Mississippi and Tennessee amounted to about
$50 a month for a family of three.
Other states that had relatively low grant
levels but then raised them since 1997 include
Idaho, Maine, Maryland, New Mexico, Ohio,
and Utah.
California is among the states that
compensated for the past erosion of TANF
benefits when raising TANF grant levels.
Texas is among the states that set their
TANF grant levels at a certain percentage of the
poverty line.
Access to Support Services
Center on Budget and Policy Priorities 49
Expand Outreach Efforts for Low-
Income Programs
Proposal
To conduct and support activities aimed at
helping low-income working families secure
public benefits for which they qualify, such as
the Earned Income Tax Credit, the Child Tax
Credit, health coverage through Medicaid and
SCHIP, and food stamps.
Rationale
Low-income working families are likely to
be eligible for an array of public benefits that can
help them support themselves through low-wage
work. For example, they may qualify for as much
as $4,300 in EITC benefits when they file their
tax returns in 2005, and possibly Child Tax
Credit benefits as well. These substantial wage
supplements can help pay work-related costs
such as child care and transportation, as well as
basic expenses such as rent and utilities.
In addition, since many low-income jobs do
not offer health insurance, obtaining health
coverage for children and parents through
Medicaid and SCHIP can lessen the time parents
lose from work because they are sick or must
care for a sick child.
Finally, nutrition benefits available through
the Food Stamp Program can play an important
role in keeping workers and their families healthy
and helping them afford food while meeting their
other expenses. The typical working family
qualifies for over $200 a month in food stamps.
Yet despite the availability of these critical
work supports, large numbers of eligible families
do not receive them. Only about half of eligible
working families participate in the Food Stamp
Program, for example, and between 20 and 25
percent of eligible families do not claim the
EITC.
Research shows that many eligible workers
do not know about available benefits, do not
think they qualify, or need help applying. For
example, a 2000 study by the Kaiser Commission
on Medicaid and the Uninsured found that 40
percent of families whose children were eligible
for Medicaid but not enrolled did not know that
children of working parents are potentially
eligible for Medicaid.
In addition, some families may decide not to
apply for public benefit programs because they
regard the application process as too difficult or
intrusive. Such perceptions may be based on past
experiences with these programs. Thus, outreach
can be instrumental in alerting families to the fact
that application forms and procedures have been
significantly simplified in recent years,
particularly for health programs but recently in
food stamps as well.
Design Options
States can promote participation in public
benefit programs by disseminating information
(which must be accessible to people who speak
languages other than English or who have low
literacy skills) and by creating easy opportunities
to secure and retain benefits. Families that are
eligible for benefits but unenrolled are only one
potential target of these campaigns. Other targets
are families that have recently become eligible
for benefits — after a family member lost a job
or employer-sponsored health coverage, for
example — and families that are receiving some
but not all of the benefits for which they qualify.
States should make special efforts to reach
groups with particularly high rates of non-
participation in public benefit programs. For
example, eligible adolescents are much less
likely than younger children to be enrolled in
health coverage programs, and Hispanic parents
are much less likely than non-Hispanic parents to
know about the EITC.
It should be noted that state efforts to
improve participation will be more effective if
states also simplify and streamline their
enrollment and renewal procedures. States have
considerable discretion in this area: they can
create short, clearly worded forms, minimize
verification requirements, and reduce reporting
Center on Budget and Policy Priorities 50
and renewal requirements. (See the section of
this report entitled “Align Policies and
Procedures in Benefit Programs” for more on this
topic.)
Ideas for state outreach activities include:
• Use the application as an outreach tool.
Most states provide an application form
designated exclusively for applying for
children’s health coverage through Medicaid
or SCHIP. (Some states also allow parents to
apply using the same form.) While these
applications provide an easy way to enroll in
health coverage, the fact that they focus on a
single benefit may cause some families not to
realize that they are eligible for other
programs as well.
States can add a simple statement to the
children’s health insurance application
indicating that the family may be eligible for
other benefits, such as food stamps, and
providing a phone number to call for
assistance. In some cases, if the family
indicates a desire to apply for another benefit,
the information from the completed health
insurance application can be transferred to
the appropriate agency to jump-start the
application process for the other benefit.
(See page 51.)
• Use information from existing benefit
program databases to identify families
likely to qualify for other benefits and help
them enroll. In many cases, a family
member or household that is eligible for one
benefit program will qualify for other
benefits as well.
California, for example, directs county
offices to review families enrolled in food
stamps to identify households in which
children are not also enrolled in Medicaid or
SCHIP. When these families renew their
food stamps, they receive a notice indicating
which family members may be eligible for
health coverage and requesting permission to
use the information in the food stamp case
file to conduct an eligibility determination
for Medicaid or SCHIP. By simply signing
and returning the notice, families can apply
for health coverage.
• Use on-line screeners and allow families to
apply over the Internet. A growing number
of states are using computer technology to
screen families for various benefit programs
(that is, to give them a preliminary indication
of whether they are eligible). Information
from a screening may give a family the
confidence and motivation it needs to
proceed with the application process.
Increasingly, states also are allowing families
to apply online, which can be more
convenient, particularly for working families.
Applicants provide basic demographic and
financial information and then are given a list
of programs for which they may qualify —
and, sometimes, the approximate size of the
benefit. In some cases, the applications are
filled out and submitted automatically once
the applicant provides the necessary
information.
• Capitalize on routine channels for
communication with beneficiaries. State
agencies interact with existing and potential
beneficiaries through scheduled mailings,
newsletters, and other mechanisms. These
can be effective avenues for conducting
outreach to ensure that families know what
benefits they might qualify for and how to
apply.
For example, WIC agencies can provide
information about food stamps, Medicaid,
SCHIP, and the EITC when participants pick
up WIC vouchers or attend nutrition
education sessions. Agencies that administer
foster care and energy assistance can mail
information with benefit checks.
To reassure families that applying for a new
benefit will not jeopardize their eligibility for
a benefit they currently receive, materials
disseminated by state agencies should
explain how benefit programs interact with
one another. For example, materials that
Center on Budget and Policy Priorities 51
promote the EITC should explain that the
credit generally is not counted as income in
determining eligibility for federally funded
benefits such as food stamps and Medicaid.
• Enlist other organizations in outreach.
State agencies have ongoing relationships
with a wide variety of government and non-
government entities that can be enlisted to
help with outreach initiatives.
For example, state education departments can
encourage schools to alert families about
benefits for their children and help them
apply. In many states, applications for free
and reduced-price school meals have been
revised to inform families that participating
children are also likely to be eligible for
publicly funded health coverage. Many such
applications also direct families to help in
applying for health coverage; in some cases,
information on the school meal application
may be used to begin the health coverage
application process.
In another example, agencies that issue
licenses to child care programs can deliver
information about food stamps, health
coverage, and tax credits when they inspect
child care facilities.
States also can use their connections to
businesses and employers to promote
benefits for working families. For example,
the Texas Workforce Commission provides
all businesses that are registered with the
state a supply of envelope stuffers informing
employees about the EITC. The Commission
also presents information about the EITC at
monthly business conferences.
• Incorporate outreach into the work of
local offices. Families seeking assistance at
a local welfare office are often able to apply
for cash assistance, food stamps, and
Medicaid at the same time. If they are
seeking other kinds of services, however,
caseworkers may not be able to enroll them
in work-support programs even though the
information caseworkers are collecting could
help determine families’ eligibility for those
programs.
For example, caseworkers helping families
with child support enforcement collect
income information from families and should
be able to tell whether a family’s income is
likely to qualify them for food stamps or
Medicaid. In cases such as these, states can
provide potentially eligible families with
applications for those programs.
States that have adopted the Medicaid/SCHIP
“presumptive eligibility” option for children
can go one step further and allow
caseworkers for programs such as child
support, subsidized child care, and TANF to
enroll children who appear eligible for
Medicaid or SCHIP in the appropriate
program on a temporary basis while their
parents complete the application process. In
this way, children can enjoy full program
benefits without waiting for the state to make
a final eligibility determination.
• Establish a toll-free hotline to provide
public information and application
assistance. Toll-free telephone hotlines can
provide an easy way for families to get basic
information about benefit programs, as well
as help in applying. States can either support
community-based toll-free assistance lines or
initiate their own. To be effective, such
hotlines should provide help in languages
other than English and should be accessible
outside regular working hours.
The toll-free number should be included in
all outreach materials, notices to families,
public services announcements, and
advertisements.
In at least 23 states, telephone-based
community services information systems
known as “2-1-1 systems” are being
developed. Callers simply dial “2-1-1” to
find out about human services programs in
their area. Where such systems exist, states
should ensure that they are prepared to
inform callers about the full range of work-
Center on Budget and Policy Priorities 52
support benefits. Also, several states provide
funding for 2-1-1 systems.
• Support community organizations. While
state-initiated outreach activities are very
important, families often receive the most
effective help directly from neighborhood
organizations they know and trust. Some
states provide financial assistance to
community-run groups and campaigns that
help low-income families obtain public
benefits.
Funding
EITC outreach activities can be supported
with federal TANF and state maintenance-of-
effort funds.
Health insurance outreach and enrollment
activities can be supported with Medicaid and
SCHIP administrative funds. Medicaid
administrative funds are available to states at a
federal matching rate of 50 percent; the federal
matching rate for SCHIP varies from 65 to 83
percent, depending on the state.
In addition, some states have funds
remaining from the TANF delinking fund (also
called the $500 million fund), established by the
1996 welfare law to ensure that families do not
lose health coverage as a result of changes in
state welfare systems. These funds, which are
available to the states at a greatly enhanced
matching rate (up to 90 percent for many
activities), can be used for outreach activities.
Finally, states can receive federal matching
funds at a 50 percent matching rate to conduct
food stamp outreach.
States Using the Option
Besides California (described above),
another state that has used information from state
benefit program databases to help families obtain
other benefits is Minnesota. In 1999 the state
revenue department used tax records to identify
families that were likely to qualify for SCHIP
based on their eligibility for the state EITC. Such
families were sent a brochure containing general
information and a toll-free number to call for an
application. Respondents received a follow-up
letter encouraging them to apply and providing a
list of groups to contact for help.
One example of a state incorporating
outreach into the work of local office is in
Alameda County, California. County social
services agency staff were trained to advertise the
EITC to all families applying for and receiving
public benefits and to deliver free tax filing help.
In 2003, the agency helped 716 families claim
nearly $950,000 in federal tax refunds.
States in which families can apply for health
coverage online include California, Georgia,
Kansas, Michigan, Nevada, Pennsylvania,
Washington, and West Virginia. Some of these
states — Kansas, Pennsylvania, and
Washington, for example — allow families to
apply online for several benefits, including food
stamps.
Most states have toll-free hotlines that
provide information on Medicaid and SCHIP; a
number of states take applications over the
phone. All have hotlines that provide food stamp
information as well. Washington operates an
EITC hotline providing information about
eligibility and referrals to free tax filing
assistance. In addition to taking “inbound” calls,
hotline staff have placed calls to tens of
thousands of current and former TANF recipients
to inform them about the EITC.
Two examples of state support for
community outreach organizations and activities
are Illinois and New York, which provide
modest grants or application assistance fees to
organizations trained to help families apply for
health coverage. Also, states such as Maryland,
Illinois, and Delaware provide funding for local
outreach campaigns and groups offering free tax
filing assistance.
Center on Budget and Policy Priorities 53
Align Policies and Procedures in
Benefit Programs
Proposal
To adopt a simpler, more streamlined
structure for low-income programs, making them
easier for eligible families to participate in and
easier for states to administer.
Rationale
Lack of coordination among the core benefit
programs states administer can make it difficult
for eligible families to participate in more than
one program. This is especially true for low-
income working families who are struggling to
juggle work and family obligations.
States have significant opportunities under
federal law to streamline and integrate the rules
governing Medicaid, the State Children’s Health
Insurance Program (SCHIP), food stamps, TANF
cash assistance, and child care subsidy programs
funded with TANF or child care block grant
funds. Many of these opportunities are fairly
new: the 2002 food stamp reauthorization
legislation greatly expanded state flexibility in
food stamps (the area where federal rules have
historically been most restrictive), enabling states
to streamline and integrate their rules in an array
of low-income programs.
A number of states are starting to take
advantage of these opportunities, and other states
are likely to follow suit as they become more
familiar with their new flexibility.
In general, federal law allows states to create
a system in which a family completes one simple
application that covers multiple benefit programs,
submits a single set of verification documents
that can be used for multiple programs, provides
updated information only at six-month intervals
(which is then used to update eligibility in all
programs), and completes a single eligibility
review once a year for all programs.
Such a system can benefit states as well,
easing the administrative burdens they face in
operating these programs by eliminating wasteful
and duplicative procedures.
Design Options
Below are some of the most promising
opportunities to improve program alignment.
• Ensure that applications are simple to use
and provide a gateway into all core benefit
programs. Most states have applications
that cover multiple programs, but many of
these leave out core benefits for low-income
working families, such as SCHIP or child
care. At the same time, most states have
developed short, user-friendly applications
for Medicaid and SCHIP, but these
applications do not connect families with
other supports such as child care and food
stamps. With modest changes, these simple
child health applications can serve as
applications or screening tools for other
programs. (Similarly, child care applications
can serve as a gateway to child health and
food stamp programs.)
• Simplify verification requirements across
programs. States have near-total discretion
over verification requirements for Medicaid,
SCHIP, TANF, and child care and significant
discretion in food stamps. They can use this
flexibility to create a system in which
families only need submit verification of
income or other eligibility factors once; that
information could be used by multiple
programs, even if benefits are not applied for
simultaneously.
• Reduce the occasions when families must
report changes in their circumstances and
align these “reporting rules” across
programs. The 2002 food stamp changes
make it far easier for states to reduce the
number of occasions in which families must
report changes in income and other
circumstances that might affect their
eligibility. This has given states new
flexibility to simplify and align their change-
reporting rules across a range of programs.
Center on Budget and Policy Priorities 54
For example, a state can create a system in
which families generally provide updated
information on their income and other
circumstances only once every six months;
the state then uses this information to review
and extend families’ eligibility in all of the
benefit programs in which they participate.
Such a system would be particularly helpful
for working families, which are most
burdened by complex reporting rules since
their incomes are more likely to fluctuate.
• Conduct a single eligibility review to cover
multiple programs. Federal rules require
states to review the eligibility of persons
receiving food stamps, Medicaid, and SCHIP
at least every 12 months, but states may do
so more frequently. In TANF and child care,
states have complete control over their
eligibility review policies. This allows states
to align the eligibility review dates so a
single review can be conducted for all
programs.
States also can ensure that information
obtained in an eligibility review (or semi-
annual report) for one program is used to
update and, if appropriate, extend eligibility
for other programs as well. For example,
when a family completes a food stamp
review or submits a semi-annual report, the
state has the information it needs to update
and extend Medicaid and SCHIP eligibility.
• Adopt a common policy across programs
regarding what counts toward income and
asset limits. While each program would
retain its own income limit and asset limit (if
it has one), adopting common definitions of
what counts toward those limits would help
eliminate the confusion often faced by
families applying for multiple programs —
and by caseworkers attempting to help them.
Such a step also would allow states to reduce
the number of questions on their application
forms.
A state may align the income- and asset-
counting rules it uses in food stamps to the
state’s rules in TANF and/or Medicaid for
family coverage. Since states have very
broad flexibility over the rules in those latter
two programs, this option largely allows a
state to define for itself the types of income
and assets it wishes to consider and to align
those rules across the major benefit
programs. (States have full flexibility to
establish income- and asset-counting rules in
SCHIP and child care programs, and thus can
adopt the same policies in these programs as
well.)
It should be noted that many states do not
have asset limits for certain programs, such
as Medicaid for children, SCHIP, or child
care. In these cases, the state could adopt a
common asset-counting rule only for those
benefit programs that do have asset limits.
Funding
The cost of making many of these changes
— such as the cost of changing computer
systems, printing new application forms, and
staff training — generally can be shared between
the federal and state governments. Changes
related to food stamps and Medicaid can be
funded with federal administrative matching
funds in those programs.
Moreover, some of these changes should
actually reduce state and federal administrative
costs. For example, a state that automatically
renews Medicaid eligibility based on updated
information provided for food stamp purposes
reduces its Medicaid agency’s workload by
eliminating the need for separate Medicaid
eligibility reviews.
Some of these changes could raise overall
program costs by increasing participation.
However, any increase in food stamp benefit
costs would be funded entirely by the federal
government, and increases in Medicaid or SCHIP
benefit costs would be shared between the federal
and state governments, as would increases in
child care benefit costs (though federal child care
funds are capped).
Center on Budget and Policy Priorities 55
States Using the Option
A number of states have adopted some of
these ideas:
• Application: Some Ohio counties use a
combined child care/children’s health
application. Oklahoma uses a single short
application that covers all core benefit
programs, including child care.
• Verification: Utah and Washington scan
and then electronically store all verification
documents provided by families. This
eliminates the need for families to re-submit
documents.
• Reporting rules: More than 40 states have
adopted the simplified reporting option in the
Food Stamp Program, under which families
generally must report changes in their
circumstances only at six-month intervals. A few
states have adopted the food stamp reporting
approach in other programs. For example, the
District of Columbia and Arizona have adopted
it in TANF, while Louisiana has adopted it in
TANF and child care.
• Simplified renewal policy: Arkansas,
Illinois, Louisiana, and New York City use
the updated information families provide
every six months for food stamp purposes to
update and extend eligibility in Medicaid,
thereby eliminating the need for separate
Medicaid eligibility reviews for food stamp
recipients.
• Simplified and aligned income and
resource rules: Approximately 26 states
have used the new flexibility in the Food
Stamp Program to simplify their definitions
of income, assets, or both.
Center on Budget and Policy Priorities 57
Appendix: Resources for Additional Information
Wage Supplements
State Earned Income Tax Credit
Joseph Llobrera and Bob Zahradnik, A HAND UP: How State Earned Income Tax
Credits Help Working Families Escape Poverty 2004, May 14, 2004
http://www.cbpp.org/5-14-04sfp.pdf
State EITC Online Resource Center (www.stateeitc.com).
Other Low-Income Tax Relief Measures
Bob Zahradnik and Joseph Llobrera, State Income Tax Burdens on Low-Income Families
in 2003, April 8, 2004 http://www.cbpp.org/4-8-04sfp.pdf.
State Minimum Wage that is Higher than Federal
Jeff Chapman, States Move on Minimum Wage, Economic Policy Institute, June 11,
2003, www.epinet.org/content.cfm/issuebriefs_ib195
Economic Policy Institute, Minimum Wage Issue Guide,
http://www.epinet.org/content.cfm/issueguides_minwage_minwage
Assistance with Costs of Basic Needs and Work Expenses
State-funded Housing Assistance
Barbara Sard and Tim Harrison, The Increasing Use of TANF and State Matching Funds
to Provide Housing Assistance to Families Moving from Welfare to Work — 2001
Supplement, February 13, 2002. http://www.cbpp.org/12-3-01hous.pdf
Jennifer Twombly, A Report on State-Funded Rental Assistance Programs: A Patchwork
of Small Measures, March 2001, National Low-Income Housing Coalition,
http://www.nlihc.org/pubs/patchwork.pdf
Center on Budget and Policy Priorities 58
Transitional Food Stamp Benefits for Families Leaving Welfare
Center on Budget and Policy Priorities, Transitional Food Stamps: Background and
Implementation Issues, November 2003, http://www.cbpp.org/11-10-03fa.pdf
Carole Trippe, Liz Schott, Nancy Wemmerus and Andrew Burwick, Simplified Reporting
and Transitional Benefits in the Food Stamp Program: Case Studies os State
Implementation. Final Report, May 2004, Document No. PR04-20,
http://www.mathematica-mpr.com/publications/PDFs/efansimp.pdf
Child Care Assistance for Low-income Families
Nancy Duff Campbell, Judith C. Appelbaum, Karin Martinson, and Emily Martin, Be All
That We Can Be: Lessons From the Military for Improving Our Nation's Child Care
System, National Women’s Law Center, April, 2000.
Sandra K. Danziger, Elizabeth Oltmans Ananat, and Kimberly G. Browning, Childcare
Subsidies and the Transition from Welfare to Work, forthcoming in Family Relations,
vol. 52, no. 2, March 2004.
Linda Giannarelli, Sarah Adelman, and Stefanie Schmidt, Getting Help with Child Care
Expenses, Urban Institute, February 2003.
Robert J. Lemke, Robert Witt, and Ann Dryden Witte, Child Care and the Welfare to
Work Transition, March 2001.
Pamela Loprest, Use of Government Benefits Increases among Families Leaving Welfare,
Urban Institute, September 2003.
Jennifer Mezey, Mark Greenberg, and Rachel Schumacher, The Vast Majority of
Federally-Eligible Children Did Not Receive Child Care Assistance in FY 2000, Center
for Law and Social Policy, October 2002.
http://www.clasp.org/Pubs/DMS/Documents/1024427246.32/1in7sum.pdf
National Institute of Child Health and Human Development Early Child Care Research
Network, Does Quality of Child Care Affect Child Outcomes at Age 4 ½?, Development
Psychology, Vol. 39, No. 3, 451-469, 2003.
National Women’s Law Center, Without New Investments, States Cut Child Care
Assistance and Gaps Widen, http://www.nwlc.org/pdf/ChildCareCutsGapMap2004.pdf.
Rachel Schumacher, Kate Irish, and Joan Lombardi, Meeting Great Expectations:
Integrating Early Education Program Standards in Child Care, Center for Law and
Social Policy, August 2003,
http://www.clasp.org/DMS/Documents/1061231790.62/meeting_rpt.pdf
Center on Budget and Policy Priorities 59
Schulman, Karen and Helen Blank, Child Care Assistance Policies 2001-2004: Families
Struggling to Move Forward, States Going Backward, National Women’s Law Center,
September 2004
Schulman, Karen, Key Facts: Essential Information about Child Care, Early Education
and School-Age Care, Children’s Defense Fund, March 2003.
Amy Dryden Witte and Magaly Queralt, Impacts of Eligibility Expansions and Provider
Reimbursement Rate Increases on Child Care Subsidy Take-Up Rates, Welfare Use, and
Work, May 2003.
Career Advancement Assistance
Individual Development Accounts
Corporation for Enterprise Development and Center on Budget and Policy Priorities,
October 2002, 2002 Federal IDA Briefing Book __ How IDAs affect Eligibility for
Federal Programs, October 2002,
http://gwbweb.wustl.edu/csd/Publications/2001/State_Policy_Guide.htm
Center for Social Development and Corporation for Enterprise Development, IDA State
Policy Guide __ Advancing Public Policies in Support of Individual Development
Accounts, March 2001,
http://gwbweb.wustl.edu/csd/Publications/2001/State_Policy_Guide.htm
Expanded Access to Education and Training
S.S. Butler, L.S. Deprez, and R.J. Smith, “Education: “The one factor that can keep me
from sliding into hopeless poverty.” Journal of Poverty: Innovations, in Social, Political,
and Economic Inequalities, 8 (2), 1-24, 2004.
Center on Law and Social Policy, May 2002 national survey of state TANF policies
toward postsecondary training or education. Available at
http://www.clasp.org/DMS/Documents/1024591897.16/doc_Postsec_survey_061902.pdf,
www.clasp.org/Pubs/DMS/Documents/1024591231.74/Postsec_table_I_061902.pdf,
www.clasp.org/Pubs/DMS/Documents/1024591338.42/Postsec_table_II_061902.pdf.
G. Hamilton, Moving People From Welfare to Work: Lessons from the National
Evaluation of Welfare-to-Work Strategies, Washington, DC: U.S. Department of Health
and Human Services. July 2002. Available at
http://aspe.hhs.gov/hsp/newws/synthesis02/
.
Center on Budget and Policy Priorities 60
K. Martinson and J. Strawn, Built to Last: Why Skills Matter for Long Run Success in
Welfare Reform, April 2003, Washington, DC: CLASP. Available at
http://www.clasp.org/DMS/Documents/1051044516.05/BTL_report.pdf
.
A. Mathur with J. Reichle, J. Strawn, and C. Wiseley, From Jobs to Careers: How
California Community College Credentials Pay Off for Welfare Recipients, May, 2004,
Washington, DC: CLASP. Available at
http://www.clasp.org/DMS/Documents/1084454956.97/Jobs_Careers.pdf.
Income Support for the Unemployed
Expanded Eligibility for Unemployment Insurance
Extended Unemployment Insurance Benefits during Recessions
Rebecca Smith, Rick McHugh, and Andrew Stettner, Between a Rock and a Hard Place:
Confronting the Failure of State UI Systems to Serve Women and Working Families, July
2003, http://www.nelp.org/ui/initiatives/familiy/between.cfm
National Employment Law Project, 2003 State UI Legislation Highlights, July 22, 2003,
http://www.nelp.org/ui/state/access/2003ui.cfm
Maurice Emsellem, Jessica Goldberg, Rick McHugh, Wendell Primus, Rebecca Smith,
and Jeffrey Wenger, Failing the Unemployed: A State-by-State Examination of
Unemployment Insurance Systems, March 12, 2002, http://www.cbpp.org/3-12-02ui.pdf
Access to Support Services
Expanded Outreach Efforts
Center on Budget and Policy Priorities, The 2004 Earned Income Tax Credit Outreach
Kit, http://www.cbpp.org/eic2004/index.html.
Program Integration
Sharon Parrott and Stacy Dean, Aligning Policies and Procedures In Benefit Programs:
An Overview of the Opportunities and Challenges Under Current Federal Laws and
Regulations, January 2004, http://www.cbpp.org/1-6-04wel.pdf
