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TANF’s Counterproductive Asset Tests

Eliminating the Tests Will Help Families While Saving States Money

SOURCE: AP/M. Spencer Green

Lisa Zilligen, a single mother and full-time student at Chicago's Loyola University, serves lunch to her three children, Miles, 20 months, Olivia 6, left, and Danielle, 8. Asset tests aren’t just a burden on families; they also incur unnecessary administrative costs to state agencies that handle the disbursement of TANF benefits.

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When the Personal Responsibility and Work Opportunity Act created the Temporary Assistance for Needy Families in 1996, the new federal assistance program emphasized moving low-income families from welfare to work and promoting self-sufficiency. Yet certain provisions within TANF run counterproductive to these goals, particularly the asset tests that bar families from receiving cash assistance if they have savings above a meager amount. These asset tests often make families ineligible to receive benefits if they have money saved up in retirement or college savings accounts, or even if they own a car in some cases. States already have the ability to choose their own asset limits, but the upcoming reauthorization of TANF and a proposed provision in President Barack Obama’s fiscal year 2011 budget provide lawmakers with opportunities to enact reforms at the state and national level.

States have created a patchwork of asset limits for TANF eligibility. Most states exempt owning a vehicle from the asset tests, but only a few have significantly raised the overall asset limits, and average asset limits ranged from $2,000 to $3,000 in 2009. Some states do not provide assistance to a family whose assets exceed 185 percent of their standard of need, which is the amount a state believes is necessary for a family to live in minimal decency. Arkansas, Vermont, and a number of other states, for example, do not allow families to qualify for TANF benefits if their assets total more than $2,000. TANF is meant to provide families with help when they need it most, but the asset tests essentially encourage them to stop saving and accumulating the assets that would help them get back on their feet. Public policy must focus on income support as well as asset building to lift families out of poverty.

And the asset tests aren’t just a burden on families. Asset tests incur unnecessary administrative costs to state agencies that handle the disbursement of TANF benefits. State agencies must evaluate and determine whether each case they consider qualifies for benefits based on asset limits and other factors. Valuable staff time and salaries could be used more productively toward benefits to help low-income people.

Ohio, Virginia, and Louisiana have already eliminated asset tests altogether and provide a model for the federal government and other states considering reform. Proponents of asset limits worry that eliminating the measure would cause a spike in caseloads, but asset-limit reform in Ohio and Virginia (Louisiana data is not yet available) actually resulted in initial caseload declines. The fact is that most TANF-eligible families do not have significant assets. TANF caseloads have increased during the Great Recession, yet these states have not seen disproportionate increases compared to other states.

Reforming asset tests can help states save money in reduced administrative costs and encourage low-income families to save and accumulate assets while they steadily move toward economic security. It’s time for the federal government to fix the broken asset-limit system.

Eliminating asset tests saves money

Enforcing and regulating asset tests costs states time and money that could be better spent helping families find work or overcome other barriers to self-sufficiency. Eliminating asset tests could potentially save states money, especially in today’s economic downturn where states’ human services departments are understaffed and facing tight budgets. Removing asset tests may allow a few additional families to qualify for benefits, but the number of otherwise eligible people who have significant assets is so small that the increased money spent on assistance is less than the amount saved in administrative costs. Virginia spent approximately $127,200 more on benefits for 40 families after the changes, but saved $323,050 in administrative staff time.

States have seen similar results when removing asset tests for other means-tested benefit programs. When Oklahoma eliminated them for Medicaid, for example, it resulted in administrative cost savings of close to $1 million in a single year.

Eliminating asset tests encourages TANF recipients to save and accumulate assets

Most states in 2009 disqualified families from receiving TANF if they had assets totaling between $2,000 and $3,000. This means that these low-income families must choose between saving income to achieve greater economic security in the long run or staying on TANF, a program that provides needed support in the near term. This dichotomy is not helpful in setting families on a long-term path to self-sufficiency.

Low-income families who do not qualify for TANF also suffer because they are forced to spend down the few assets they have in order to qualify for needed assistance in tough economic times. This sets up a dynamic that makes it more difficult for families facing a temporary setback to get back on their feet.

Eliminating asset limits would allow families to receive the help they need and create incentives for them to save for the future. TANF recipients need economic security, and reforming the way asset tests work—either through complete elimination or exemption of some form of assets—can help them get there.

Ohio, Virginia, and Louisiana show the benefits of reform

There are still many more studies needed to evaluate the progress of TANF asset test reform in Ohio, Virginia, and Louisiana. But it is already evident that the resulting consequences are positive ones.

Ohio, the first state to eliminate TANF asset tests, experienced no caseload increase and saved money in administrative costs. Virginia saw only minimal increases and these were all more than offset by administrative savings. Further investigations are necessary into the effects of asset test elimination in Louisiana since the program was enacted only one year ago. But one thing is clear: The benefits of reforming asset tests are greater than the costs of keeping these counterproductive measures. 

Opportunities for reform

President Obama’s FY 2011 budget proposal provides an opportunity to innovate and reform asset tests for means-tested programs including TANF. President Obama’s budget recommends a provision that would help low-income people avoid being penalized for holding minimal assets by allowing them to keep at least $10,000 in assets before losing their eligibility for means-tested programs. The president’s budget proposal signals the kind of federal leadership necessary to make innovative changes to improve TANF access for families in need. This provision provides an incentive for states to innovate by lowering their asset limits or eliminating them altogether. One example is Ohio, which received $28.1 million in federal TANF high-performance bonuses in 2004 and $14.7 million in 2005 for labor force attachment programs, which help people maintain their connection to the labor force. Such incentives will allow states to support work and self-sufficiency for low-income families.

Reforming TANF asset tests, whether it be in the upcoming reauthorization of TANF or through the enactment of President Obama’s budget proposal, would be a huge step toward helping states save money and low-income individuals move closer to self-sufficiency. And the fact that this change has already occurred in three states makes a stronger case for other states to follow in their footsteps and provides momentum for President Obama’s budget proposal to significantly reform asset limits.

These types of reforms can help families avoid having to spend down all their assets before qualifying for TANF benefits in dire economic climates. American families need a safety net that will help them bridge the gap between getting back on their feet and building assets that will make them financially secure.

Laura Pereyra is a former intern with the Half in Ten campaign at American Progress.

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