Temporary Assistance for Needy Families: Welfare Waivers

Gene Falk
Specialist in Social Policy

The Department of Health and Human Services (HHS) announced that it is willing to waive certain federal work participation standards under the Temporary Assistance for Needy Families (TANF) block grant to permit states to experiment with “alternative and innovative strategies, policies, and procedures that are designed to improve employment outcomes for needy families.” The major provision that HHS would waive is the numerical performance standards that states must meet or risk being penalized through a reduction in their TANF block grant. HHS announced this initiative on July 12, 2012.

The TANF statute provides that 50% of all families and 90% of two-parent families included in a participation rate are required to be engaged in work, though few states have ever faced the full standard because this percentage is reduced for certain credits. For all years from FY2002 through FY2006 and in FY2008 and FY2009, the majority of states had an effective (after-credit) TANF work participation standard of 25% or less. In FY2009, 22 states had their 50% all family standard reduced to 0% because of these credits. Additionally, many states have avoided the twoparent standard altogether by assisting that portion of their caseload with state funds not subject to TANF work standards.

To be considered engaged in work under the TANF standard, a family must either be working or in specified welfare-to-work activities for a minimum number of hours per week. Preemployment activities such as job search, rehabilitative activities, and education count for a limited period of time or under limited circumstances. Though these counting rules do not apply directly to individual recipients, they may influence how a state designs its welfare-to-work program. States that allow participation in activities that cannot be counted (e.g., job search or education in excess of their limits) do not receive credit for that participation and potentially risk failing the work standard.

The new waivers would permit states to have welfare-to-work initiatives assessed using different measures than the TANF work participation rate. Thus, states could test alternative welfare-towork approaches by engaging recipients in activities currently not countable without risk of losing block grant funds. States would have to apply for waivers, which must be approved by HHS and the Office of Management and Budget (OMB). States would also be required to monitor performance measures and evaluate the alternative welfare-to-work program. HHS also indicated it might waive some requirements that apply to states for verifying work activities.

The Government Accountability Office (GAO) has determined that the waiver initiative constitutes a “rule,” subject to the Congressional Review Act (CRA). Under the CRA, if a “resolution of disapproval” is passed by Congress and signed by the President (or the President’s veto is overridden), the waiver initiative could not take effect. On September 20, 2012, the House passed such a “resolution of disapproval” (H.J.Res. 118) of the waiver initiative.

The legislative authority cited by HHS to grant waivers in public assistance programs dates back to 1962, although the new initiative would allow the first new waivers to test welfare-to-work strategies in more than 15 years. “Waivers” have historically been important in welfare reform, and TANF let states continue their pre-1996 waivers until their expiration. The last such waiver expired in 2007.


Date of Report: November 19, 2012
Number of Pages: 33
Order Number: R42627
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SBA Small Business Investment Company Program

Robert Jay Dilger
Senior Specialist in American National Government

The Small Business Administration’s (SBA’s) Small Business Investment Company (SBIC) Program is designed to enhance small business access to venture capital by stimulating and supplementing “the flow of private equity capital and long term loan funds which small business concerns need for the sound financing of their business operations and for their growth, expansion, and modernization, and which are not available in adequate supply.” Facilitating the flow of capital to small businesses to stimulate the national economy was, and remains, the SBIC program’s primary objective.

At the end of FY2012, there were 301 privately owned and managed SBICs licensed by the SBA participating in the SBIC program, providing financing to small businesses with private capital the SBIC has raised (called regulatory capital) and funds the SBIC borrows at favorable rates (called leverage) because the SBA guarantees the debenture (loan obligation). SBICs pursue investments in a broad range of industries, geographic areas, and stages of investment. Some SBICs specialize in a particular field or industry, while others invest more generally. Most SBICs concentrate on a particular stage of investment (i.e., startup, expansion, or turnaround) and geographic area.

The SBA is authorized to provide up to $3 billion in leverage to SBICs annually. The SBIC program has invested or committed about $18.2 billion in small businesses, with the SBA’s share of capital at risk about $8.8 billion. In FY2012, the SBA committed to guarantee $1.9 billion in SBIC small business investments, and SBICs provided another $1.3 billion in investments from private capital, for a total of more than $3.2 billion in financing for 1,094 small businesses.

Some Members of Congress, the Obama Administration, and small business advocates have argued that the SBIC program should be expanded as a means to stimulate economic activity, create jobs, and assist in the national economic recovery. For example, several bills have been introduced during the 112th Congress to expand the program. For example, S. 3442, the SUCCESS Act of 2012, and S. 3572, the Restoring Tax and Regulatory Certainty to Small Businesses Act of 2012, would, among other provisions, increase the program’s authorization amount to $4 billion from $3 billion, increase the program’s family of funds limit (the amount of outstanding leverage allowed for two or more SBIC licenses under common control) to $350 million from $225 million, and annually adjust the maximum outstanding leverage amount available to both individual SBICs and SBICs under common control to account for inflation. Also, H.R. 6504, the Small Business Investment Company Modernization Act of 2012, would increase the program’s family of funds limit (the amount of outstanding leverage allowed for two or more SBIC licenses under common control) to $350 million from $225 million.

Others worry about the potential risk an expanded SBIC program has for increasing the federal deficit. In their view, the best means to assist small business, promote economic growth, and create jobs is to reduce business taxes and exercise federal fiscal restraint.

Some Members and small business advocates have also proposed that the program target additional assistance to startup and early stage small businesses, which are generally viewed as relatively risky investments but also as having a relatively high potential for job creation. In an effort to target additional assistance to newer businesses, the SBA has established, as part of the Obama Administration’s Startup America Initiative, a $1 billion early stage debenture SBIC initiative (up to $150 million in leverage in FY2012, and up to $200 million in leverage per fiscal
year thereafter until the limit is reached). Early stage debenture SBICs are required to invest at least 50% of their investments in early stage small businesses, defined as small businesses that have never achieved positive cash flow from operations in any fiscal year.

This report describes the SBIC program’s structure and operations, including two recent SBA initiatives, one targeting early stage small businesses and one targeting underserved markets. It also examines several legislative proposals to increase the leverage available to SBICs and to increase the SBIC program’s authorization amount to $4 billion.

Date of Report: November 20, 2012
Number of Pages: 41
Order Number: R41456
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“Disadvantaged” Small Businesses: Definitions and Designations for Purposes of Federal and Federally Funded Contracting Programs

Kate M. Manuel
Legislative Attorney

Three primary categories of “disadvantaged” small businesses are currently eligible for various contracting programs: (1) small businesses participating in the Small Business Administration’s (SBA’s) Minority Small Business and Capital Ownership Development Program (commonly known as the 8(a) Program) (8(a) participants); (2) “small disadvantaged businesses” (SDBs) and (3) “disadvantaged business enterprises” (DBEs). All programs are based in statute. Section 8(a) of the Small Business Act authorizes the 8(a) Program; Section 8(d) of the Small Business Act, the SDB program; and various transportation statutes, the DBE program. However, many of the specific requirements pertaining to these programs derive from agency regulations.

8(a) firms, SDBs, and DBEs are all characterized as “disadvantaged” because they are at least 51% owned and controlled by one or more socially and economically disadvantaged individuals or groups. However, social and economic disadvantage is defined somewhat differently for each program. Members of certain racial and ethnic groups are presumed to be socially disadvantaged for purposes of the 8(a) and SDB programs, while women are also presumed to be socially disadvantaged for purposes of the DBE program. Similarly, individuals’ net worth must be $250,000 or less for entry into the 8(a) Program, while net worth can be as high as $750,000 for newly designated SDBs and $1.32 million for newly designated DBEs.

The programs for the various types of firms also differ in their operation. The 8(a) Program is open only to firms that have been certified by SBA, and firms and individual owners may generally participate in the 8(a) Program for a maximum of nine years. 8(a) participants are eligible for set-aside or sole-source contracts, as well as other assistance from the SBA. All 8(a) firms qualify as SDBs. Other firms must be certified by procuring agencies, private certifying entities, or state or local governments to qualify for federal programs for SDB prime contractors, although they may self certify for similar programs for SDB subcontractors. SDB certification, when required, generally lasts three years, but firms may be certified multiple times. There are government-wide and agency-specific goals for the percentage of federal contract and subcontract dollars awarded to SDBs. Additionally, certain prime contractors must have “plans” for subcontracting with SDBs as terms of their contracts; agencies may use past performance in subcontracting with SDBs as an evaluation factor in source selection decisions; and agencies may give prime contractors “monetary incentives” for subcontracting with SDBs. DBEs must be certified by the state of the funding recipient. Certifications last at least three years, and firms cannot be required to reapply for certification as a condition of continuing participation in the program unless the factual basis upon which the certification was made changes. There is a national goal that 10% of federal funding for certain transportation-related projects be awarded to DBE contractors and subcontractors. Funding recipients must set similar goals, including on individual contracts.

Contracting opportunities for disadvantaged small businesses have recently been of interest to Members and committees of Congress because of small businesses’ widely asserted role in job creation. There has also been concern that the recession of 2007-2009 disproportionately affected disadvantaged small businesses, and that such businesses have been slow to recover. A separate report, CRS Report R42390, Federal Contracting and Subcontracting with Small Businesses: Issues in the 112th Congress, by Kate M. Manuel and Erika K. Lunder, discusses recently enacted and introduced legislation pertaining to the 8(a) and other programs.


Date of Report: November 20, 2012
Number of Pages: 18
Order Number: R40987
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The Temporary Assistance for Needy Families Block Grant: An Introduction

Gene Falk
Specialist in Social Policy

The Temporary Assistance for Needy Families (TANF) block grant provides grants to states, Indian tribes, and territories for a wide range of benefits, services, and activities that address economic and social disadvantage for families with children. TANF is best known for funding state cash welfare programs for needy families with children, and it was created in the 1996 welfare reform law. However, TANF is not synonymous with cash welfare. In FY2011, only 29% of federal and state TANF dollars were for cash welfare. TANF also funds child care; programs that address child abuse and neglect; various early childhood initiatives, including prekindergarten programs; earnings supplements for workers in low-income families; emergency and short-term aid; pregnancy prevention programs; responsible fatherhood programs; and initiatives to encourage healthy marriages.

The bulk of federal TANF funding is in a fixed block grant, which has been set at $16.5 billion since FY1997. The basic block grant is not adjusted for inflation, or for changes in the circumstances of a state such as its cash welfare caseload, population, or number of children in poverty. States are also required to spend a specified minimum of $10.4 billion in state funds on TANF-related activities and populations. This amount also has not changed since FY1997.

TANF cash welfare programs today reflect a long history (going back to the early 1900s) and much controversy. States set their own cash welfare benefit levels. In 2010, cash benefits in all states represented a fraction of poverty-level income. In New York, the state with the highest benefit among the 48 contiguous states, the maximum monthly TANF cash benefit for a family of three was $753, which translates to 49% of poverty-level income. In contrast, Mississippi paid a monthly cash benefit for a family of three of $170 (11% of poverty-level income). Families with adult recipients (and certain nonrecipient parents) come under work participation rules. Federally funded aid is also time-limited for such families.

The cash welfare caseload has declined dramatically from its pre-welfare-reform high of 5.1 million families in 1994 to 1.7 million families in July 2008. The cash welfare caseload increased during the recession, to a peak of 2.0 million families in December 2010. In December 2011, the cash welfare caseload stood at 1.9 million families. The cash welfare caseload has traditionally consisted of families headed by a nonworking parent, usually a single mother. However, in FY2009, less than half of the TANF cash caseload fit this description. The TANF cash caseload is very diverse, with more than half the caseload having different characteristics than the historical traditional cash welfare family.

TANF is not a program per se, but a flexible funding stream used to provide a wide range of benefits and services that address the effects of, and the root causes of, disadvantage among families with children. TANF is currently funded through March 2013. Decisions on extending TANF funding further will be made in the context of both the lingering effects of the 2007-2009 recession and longer trends that were evident even before the recession that showed an increasing percentage of children living in poverty and born into circumstances associated with economic disadvantage.


Date of Report: November 19, 2012
Number of Pages: 19
Order Number: R40946
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The Distribution of Household Income and the Middle Class

Linda Levine
Specialist in Labor Economics

Although not itself a subject of legislation, the shape of the income distribution enters Congress’s decision-making process concerning such policy issues as taxes, means-tested benefits, and social insurance programs. Congress also considers legislation specifically in the name of those in the middle class, which is variously defined as some income level or income range within the distribution of U.S. households with income. After briefly analyzing the distribution of household money income in 2011, the report attempts to put the term “middle class” into some perspective.

The first key point of the report is that, although there are a variety of ways to describe the income distribution, all show that income is concentrated among high-income households. Relatively few households can be found in the upper end of the income distribution. Of the 121,084,000 households with income in 2011, only 2.3% had incomes of at least $250,000. (The Census Bureau does not disaggregate income within the $250,000-or-more income class.) In addition, a disproportionately large share of total money income accrues to those at the upper end of the distribution. In 2011, the top 5% of U.S. households with income accounted for 22.3% of total income, and the top 20% of households (which includes the top 5%) had 51.5% of all money income.

The second major point is that there is no official government definition of who belongs to the middle class, and the term means different things to different people. The middle class may refer to a group with a common point of view or to those having similar incomes, for example.

Thirdly, absolute income appears to partly determine who belongs to the middle class. By combining money income data from the latest Annual Social and Economic Supplement to the Current Population Survey with results from surveys that asked people to identify their social class, the middle class may refer to households with income levels in 2011 that ranged from $38,521 (the bottom of the middle quintile, 20%, of households) and extended into the top quintile (households with income of $101,583 or more)—perhaps including households with incomes somewhat over $200,000.

Lastly, relative income may also be a defining characteristic of the middle class. In other words, the middle class appears to identify itself relative to the income of a reference group (e.g., their neighbors or coworkers). According to studies of self-reported well-being, those who constitute the middle class seemingly are of like minds with regard to their economic situation. Specifically, having incomes far above those at the lower end of the income distribution appears to be a source of satisfaction to the middle class, but when those at the upper end of the distribution fare much better than they do, it can be a source of consternation to the middle class. As authors of one study put it, staying ahead of the Smiths and keeping up with the Joneses is important to the middle class. This outlook may in part explain the antipathy expressed in some quarters toward the compensation of senior executives, among others, at some of the nation’s largest corporations generally and firms in the financial services industry specifically.


Date of Report: November 13, 2012
Number of Pages: 10
Order Number: RS20811
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